Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated balance sheets
|
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
$
|
$
|
Assets
|
|
|
Current
|
|
|
Cash
|
2,821,669
|
6,641,877
|
Accounts
receivable, net
|
214,979
|
239,063
|
Investment
tax credits
|
1,043,849
|
998,849
|
Prepaid
expenses, sundry and other assets
|
618,477
|
586,794
|
|
219,928
|
251,651
|
|
4,918,902
|
8,718,234
|
|
|
|
Property
and equipment, net (Note 4)
|
2,633,618
|
2,755,993
|
|
7,552,520
|
11,474,227
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Accounts
payable
|
1,769,675
|
2,643,437
|
Accrued
liabilities
|
875,590
|
353,147
|
Employee
costs payable
|
214,874
|
222,478
|
Convertible
debentures (Note 5)
|
1,498,295
|
1,790,358
|
Deferred
revenue (Note 3)
|
300,000
|
300,000
|
|
4,658,434
|
5,309,420
|
|
|
|
Deferred
revenue (Note 3)
|
1,987,500
|
2,062,500
|
|
6,645,934
|
7,371,920
|
|
|
|
Shareholders' equity
|
|
|
Capital
stock (Note 6)
|
|
|
Authorized
|
|
|
Unlimited
common shares without par value
|
|
|
Unlimited
preference shares
|
|
|
Issued
and outstanding
|
|
|
21,925,577
common shares
|
45,281,501
|
44,327,952
|
(November
30, 2018 - 18,252,243)
|
|
|
Additional
paid-in capital
|
44,186,052
|
45,110,873
|
Accumulated
other comprehensive income
|
284,421
|
284,421
|
Accumulated
deficit
|
(88,845,388
)
|
(85,620,939
)
|
|
906,586
|
4,102,307
|
Contingencies
(Note 11)
|
|
|
|
7,552,520
|
11,474,227
|
|
|
|
|
|
|
See
accompanying notes to the condensed unaudited interim consolidated
financial statements
|
|
|
Intellipharmaceutics
International Inc.
|
|
|
Condensed
unaudited interim consolidated statements of
operations
|
|
|
and
comprehensive loss
|
|
|
for
the three months ended February 28, 2019 and 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
$
|
$
|
Revenues
|
|
|
Licensing
(Note 3)
|
264,551
|
252,272
|
Up-front
fees (Note 3)
|
78,985
|
82,246
|
|
343,536
|
334,518
|
|
|
|
Cost
of goods sold
|
33,068
|
-
|
Gross Margin
|
310,468
|
334,518
|
|
|
|
Expenses
|
|
|
Research
and development
|
2,132,261
|
2,264,128
|
Selling,
general and administrative
|
1,207,243
|
1,013,470
|
Depreciation
(Note 4)
|
125,284
|
148,182
|
|
3,464,788
|
3,425,780
|
|
|
|
Loss
from operations
|
(3,154,320
)
|
(3,091,262
)
|
|
|
|
Net
foreign exchange (loss) gain
|
(11,332
)
|
25
|
Interest
income
|
11
|
-
|
Interest
expense
|
(58,808
)
|
(58,351
)
|
Net loss and comprehensive loss
|
(3,224,449
)
|
(3,149,588
)
|
|
|
|
Loss
per common share, basic and diluted
|
(0.16
)
|
(0.91
)
|
|
|
|
Weighted average number of common
|
|
|
shares outstanding, basic and diluted
|
20,058,207
|
3,470,451
|
|
|
|
|
|
|
See
accompanying notes to the condensed unaudited interim consolidated
financial statements
|
|
|
Intellipharmaceutics International Inc.
|
Condensed
unaudited interim consolidated statements of shareholders' equity
(deficiency)
|
for
the three months ended February 28, 2019 and 2018
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
Accumulated other
comprehensive income
|
|
Total shareholders' equity
(deficiency)
|
|
$
|
$
|
$
|
$
|
$
|
Balance, November 30, 2017
|
3,470,451
|
35,290,034
|
36,685,387
|
284,421
|
(71,873,459
)
|
386,383
|
DSU's to non-management board members (Note 8)
|
-
|
-
|
7,565
|
-
|
-
|
7,565
|
Stock options to employees (Note 7)
|
-
|
-
|
31,688
|
-
|
-
|
31,688
|
Net loss
|
-
|
-
|
-
|
-
|
(3,149,588
)
|
(3,149,588
)
|
Balance, February 28, 2018
|
3,470,451
|
35,290,034
|
36,724,640
|
284,421
|
(75,023,047
)
|
(2,723,952
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2018
|
18,252,243
|
44,327,952
|
45,110,873
|
284,421
|
(85,620,939
)
|
4,102,307
|
Stock options to employees (Note 7)
|
-
|
-
|
2,274
|
-
|
-
|
2,274
|
Proceeds from exercise of 2018 Pre-Funded Warrants (Note
9)
|
3,673,334
|
953,549
|
(927,095
)
|
-
|
-
|
26,454
|
Net Loss
|
-
|
-
|
-
|
-
|
(3,224,449
)
|
(3,224,449
)
|
Balance, February 28, 2019
|
21,925,577
|
45,281,501
|
44,186,052
|
284,421
|
(88,845,388
)
|
906,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated statements of cash
flows
|
|
|
for
the three months ended February 28, 2019 and 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
$
|
$
|
Net loss
|
(3,224,449
)
|
(3,149,588
)
|
Items
not affecting cash
|
|
|
Depreciation
(Note 4)
|
126,165
|
148,182
|
Stock-based
compensation (Note 7)
|
2,274
|
31,688
|
Deferred
share units (Note 8)
|
-
|
7,565
|
Accreted
interest (Note 5)
|
7,937
|
15,971
|
Unrealized
foreign exchange loss
|
-
|
13,118
|
|
|
|
Change
in non-cash operating assets & liabilities
|
|
|
Accounts
receivable
|
24,084
|
570,213
|
Investment
tax credits
|
(45,000
)
|
(45,002
)
|
Prepaid
expenses, sundry and other assets
|
(31,683
)
|
(174,740
)
|
Inventory
|
31,723
|
(95,181
)
|
Accounts
payable, accrued liabilities and employee costs
payable
|
(358,923
)
|
1,164,764
|
Deferred
revenue
|
(75,000
)
|
(75,000
)
|
Cash
flows used in operating activities
|
(3,542,872
)
|
(1,588,010
)
|
|
|
|
Financing activities
|
|
|
Repayment
of 2013 Debenture (Note 5)
|
(300,000
)
|
-
|
Proceeds
from issuance of shares on exercise of 2018 Pre-Funded Warrants
(Note 9)
|
26,454
|
-
|
Cash
flows used in financing activities
|
(273,546
)
|
-
|
|
|
|
Investing activity
|
|
|
Purchase
of property and equipment (Note 4)
|
(3,790
)
|
(38,825
)
|
Cash
flows used in investing activities
|
(3,790
)
|
(38,825
)
|
|
|
|
Decrease
in cash
|
(3,820,208
)
|
(1,626,835
)
|
Cash,
beginning of period
|
6,641,877
|
1,897,061
|
Cash, end of period
|
2,821,669
|
270,226
|
|
|
|
Supplemental cash flow information
|
|
|
Interest
paid
|
63,836
|
67,860
|
Taxes
paid
|
-
|
-
|
|
|
|
See
accompanying notes to the condensed unaudited interim consolidated
financial statements
|
|
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
1.
Nature of operations
Intellipharmaceutics
International Inc. (the “Company”) is a pharmaceutical
company specializing in the research, development and manufacture
of novel and generic controlled-release and targeted-release oral
solid dosage drugs.
On October 22,
2009, IntelliPharmaCeutics Ltd. (“IPC Ltd.”) and
Vasogen Inc. completed a court approved plan of arrangement and
merger (the “IPC Arrangement Agreement”), resulting in
the formation of the Company, which is incorporated under the laws
of Canada. The Company’s common shares are traded on the
Toronto Stock Exchange (“TSX”) and the OTCQB Venture
Market.
The Company earns
revenue from non-refundable upfront fees, milestone payments upon
achievement of specified research or development, exclusivity
milestone payments and licensing and cost-plus payments on sales of
resulting products. In November 2013, the U.S. Food and Drug
Administration (“FDA”) granted the Company final
approval to market the Company’s first product, the 15 mg and
30 mg strengths of the Company’s generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules. In
2017, the FDA granted final approval for the remaining 6 (six)
strengths, all of which have been launched. In May 2017, the FDA
granted the Company final approval for its second commercialized
product, the 50, 150, 200, 300 and 400 mg strengths of generic
Seroquel XR® (quetiapine fumarate extended release) tablets,
and the Company commenced shipment of all strengths that same
month. In November 2018, the FDA granted the Company final approval
for its venlafaxine hydrochloride extended-release capsules in the
37.5, 75, and 150 mg strengths.
Going concern
The condensed
unaudited interim consolidated financial statements are prepared on
a going concern basis, which assumes that the Company will be able
to meet its obligations and continue its operations for the next
twelve months. The Company has incurred losses from operations
since inception and has reported losses of $3,224,449 for the three
months ended February 28, 2019 (three months ended February 28,
2018 - $3,149,588), and has an accumulated deficit of $88,845,388
as at February 28, 2019 (November 30, 2018 - $85,620,939). The
Company has a working capital of $260,468 as at February 28, 2019
(November 30, 2018 - $3,408,814). The Company has funded its
research and development (“R&D”) activities
principally through the issuance of securities, loans from related
parties, funds from the IPC Arrangement Agreement, and funds
received under development agreements. There is no certainty that
such funding will be available going forward. These conditions
raise substantial doubt about its ability to continue as a going
concern and realize its assets and pay its liabilities as they
become due.
In order for the
Company to continue as a going concern and fund any significant
expansion of its operation or R&D activities, the Company may
require significant additional capital. Although there can be no
assurances, such funding may come from revenues from the sales of
the Company’s generic Focalin XR® (dexmethylphenidate
hydrochloride extended-release) capsules, from revenues from the
sales of the Company’s generic Seroquel XR® (quetiapine
fumarate extended-release) tablets and from potential partnering
opportunities. Other potential sources of capital may include
payments from licensing agreements, cost savings associated with
managing operating expense levels, other equity and/or debt
financings, and/or new strategic partnership agreements which fund
some or all costs of product development. The Company’s
ultimate success will depend on whether its product candidates
receive the approval of the FDA, Health Canada, and the regulatory
authorities of the other countries in which its products are
proposed to be sold and whether it is able to successfully market
approved products. The Company cannot be certain that it will
receive FDA, Health Canada, or such other regulatory approval for
any of its current or future product candidates, or that it will
reach the level of sales and revenues necessary to achieve and
sustain profitability, or that the Company can secure other capital
sources on terms or in amounts sufficient to meet its needs, or at
all.
The availability of
equity or debt financing will be affected by, among other things,
the results of the Company’s R&D, its ability to obtain
regulatory approvals, its success in commercializing approved
products with its commercial partners and the market acceptance of
its products, the state of the capital markets generally, the
delisting of our shares from Nasdaq, strategic alliance agreements,
and other relevant commercial considerations. In addition, if the
Company raises additional funds by issuing equity securities, its
then existing security
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
1.
Nature of operations (continued)
Going concern (continued)
holders will likely
experience dilution, and the incurring of indebtedness would result
in increased debt service obligations and could require the Company
to agree to operating and financial covenants that would restrict
its operations. In the event that the Company do not obtain
sufficient additional capital, it will raise substantial doubt
about the Company’s ability to continue as a going concern,
realize its assets and pay its liabilities as they become due. The
Company’s cash outflows are expected to consist primarily of
internal and external R&D, legal and consulting expenditures to
advance its product pipeline and selling, general and
administrative expenses to support its commercialization efforts.
Depending upon the results of the Company’s R&D programs,
the impact of the litigation against the Company and the
availability of financial resources, the Company could decide to
accelerate, terminate, or reduce certain projects, or commence new
ones.Any failure on its part to successfully commercialize approved
products or raise additional funds on terms favorable to the
Company or at all, may require the Company to significantly change
or curtail its current or planned operations in order to conserve
cash until such time, if ever, that sufficient proceeds from
operations are generated, and could result in the Company not
taking advantage of business opportunities, in the termination or
delay of clinical trials or the Company not taking any necessary
actions required by the FDA or Health Canada for one or more of the
Company’s product candidates, in curtailment of the
Company’s product development programs designed to identify
new product candidates, in the sale or assignment of rights to its
technologies, products or product candidates, and/or its inability
to file Abbreviated New Drug Applications (“ANDAs”),
Abbreviated New Drug Submissions (“ANDSs”) or New Drug
Applications (“NDAs”) at all or in time to
competitively market its products or product
candidates.
The condensed
unaudited interim consolidated financial statements do not include
any adjustments that might result from the outcome of uncertainties
described above. If the going concern assumption no longer becomes
appropriate for these condensed unaudited interim consolidated
financial statements, then adjustments would be necessary to the
carrying values of assets and liabilities, the reported expenses
and the balance sheet classifications used. Such adjustments could
be material.
(a)
Basis of consolidation
These condensed
unaudited interim consolidated financial statements include the
accounts of the Company and its wholly owned operating
subsidiaries, IPC Ltd., Intellipharmaceutics Corp. (“IPC
Corp”), and Vasogen Corp.
References in these
condensed unaudited interim consolidated financial statements to
share amounts, per share data, share prices, exercise prices and
conversion rates have been adjusted to reflect the effect of the
1-for-10 reverse stock split (known as a share consolidation under
Canadian law) (the “reverse split”) which became
effective on each of The Nasdaq Stock Market LLC
(“Nasdaq”) and TSX at the opening of the market on
September 14, 2018. The term “share consolidation” is
intended to refer to such reverse split and the terms
“pre-consolidation” and
“post-consolidation” are intended to refer to
“pre-reverse split” and “post-reverse
split”, respectively.
In September 2018,
the Company announced the reverse split. At a special meeting of
the Company’s shareholders held on August 15, 2018, the
Company’s shareholders granted the Company’s Board of
Directors discretionary authority to implement a share
consolidation of the issued and outstanding common shares of the
Company on the basis of a share consolidation ratio within a range
from five (5) pre-consolidation common shares for one (1)
post-consolidation common share to fifteen (15) pre-consolidation
common shares for one (1) post-consolidation common share. The
Board of Directors selected a share consolidation ratio of ten (10)
pre-consolidation shares for one (1) post-consolidation common
share. On September 12, 2018, the Company filed an amendment to the
Company’s articles ("Articles of Amendment") to implement the
1-for-10 reverse split. The Company’s common shares began
trading on each of Nasdaq and TSX on a post-split basis under the
Company’s existing trade symbol "IPCI" at the opening of the
market on September 14, 2018. In accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”), the change has been applied
retroactively.
The condensed
unaudited interim consolidated financial statements do not conform
in all respects to the annual requirements of U.S. GAAP.
Accordingly, these condensed unaudited interim consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year
ended November 30, 2018.
These condensed
unaudited interim consolidated financial statements have been
prepared using the same accounting policies and methods as those
used by the Company in the annual audited consolidated financial
statements for the year ended November 30, 2018 except for the
adoption of
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
2.
Basis
of presentation (continued)
(a)
Basis of consolidation (continued)
ASC 606
“Revenue from Contracts with Customers” (“ASC
606”), and Accounting Standards Update (“ASU”)
No. 2016-01, “Financial Instruments-Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities”
(ASU 2016-01), as further discussed below in Notes 3 and
12.
The condensed
unaudited interim consolidated financial statements reflect all
adjustments necessary for the fair presentation of the
Company’s financial position and results of operation for the
interim periods presented. All such adjustments are normal and
recurring in nature.
All inter-company
accounts and transactions have been eliminated on
consolidation.
(b) Use of estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the period. Actual results could differ from those
estimates.
Areas where
significant judgment is involved in making estimates are: the
determination of the functional currency; the fair values of
financial assets and liabilities; the determination of units of
accounting for revenue recognition; the accrual of licensing and
milestone revenue; and forecasting future cash flows for assessing
the going concern assumption.
3.
Significant
accounting policies
The Company
accounts for revenue in accordance with the provisions of ASC 606.
Under ASC 606, the Company recognizes revenue when the customer
obtains control of promised goods or services, in an amount that
reflects the consideration the Company expects to receive in
exchange for those goods or services. The Company recognizes
revenue following the five step model prescribed under ASC 606: (i)
identify contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenues when (or as) the
Company satisfies the performance obligation(s). The Company earns
revenue from non-refundable upfront fees, milestone payments upon
achievement of specified research or development, exclusivity
milestone payments and licensing payments on sales of resulting
products.
The relevant
revenue recognition accounting policy is applied to each separate
unit of accounting.
Licensing
The Company
recognizes revenue from the licensing of the Company's drug
delivery technologies, products and product candidates. Under the
terms of the licensing arrangements, the Company provides the
customer with a right to access the Company’s intellectual
property with regards to the license which is granted. Revenue
arising from the license of intellectual property rights is
recognized over the period the Company transfers control of the
intellectual property.
The Company has a
license and commercialization agreement with Par Pharmaceutical
Inc. (“Par”). Under the exclusive territorial license
rights granted to Par, the agreement requires that Par manufacture,
promote, market, sell and distribute the product. Licensing revenue
amounts receivable by the Company under this agreement are
calculated and reported to the Company by Par, with such amounts
generally based upon net product sales and net profit which include
estimates for chargebacks, rebates, product returns, and other
adjustments. Licensing revenue payments received by the Company
from Par under this agreement are not subject to further deductions
for chargebacks, rebates, product returns, and other pricing
adjustments. Based on this arrangement and the guidance per ASC
606, the Company records licensing revenue over the period the
Company transfers control of the intellectual property in the
consolidated statements of operations and comprehensive
loss.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
3.
Significant
accounting policies (continued)
(a)
Revenue recognition (continued)
The Company also
has a license and commercial supply agreement with Mallinckrodt LLC
(“Mallinckrodt”) which provides Mallinckrodt an
exclusive license to market, sell and distribute in the U.S. three
drug product candidates for which the Company has ANDAs filed with
the FDA, one of which (the Company’s generic Seroquel
XR®) received final approval from the FDA in
2017.
Under the terms of
this agreement, the Company is responsible for the manufacture of
approved products for subsequent sale by Mallinckrodt in the U.S.
market. Following receipt of final FDA approval for its generic
Seroquel XR®, the Company began shipment of manufactured
product to Mallinckrodt. The Company records revenue once
Mallinckrodt obtains control of the product and the performance
obligation is satisfied.
Licensing revenue
in respect of manufactured product is reported as revenue in
accordance with ASC 606. Once product is sold by Mallinckrodt, the
Company receives downstream licensing revenue amounts calculated
and reported by Mallinckrodt, with such amounts generally based
upon net product sales and net profit which includes estimates for
chargebacks, rebates, product returns, and other adjustments. Such
downstream licensing revenue payments received by the Company under
this agreement are not subject to further deductions for
chargebacks, rebates, product returns, and other pricing
adjustments. Based on this agreement and the guidance per ASC 606,
the Company records licensing revenue as earned on a monthly
basis.
Milestones
For milestone
payments that are not contingent on sales-based thresholds, the
Company applies a most-likely amount approach on a
contract-by-contract basis. Management makes an assessment of the
amount of revenue expected to be received based on the probability
of the milestone outcome. Variable consideration is included in
revenue only to the extent that it is probable that the amount will
not be subject to a significant reversal when the uncertainty is
resolved (generally when the milestone outcome is
satisfied).
Research and development
Under arrangements
where the license fees and research and development activities can
be accounted for as a separate unit of accounting, non-refundable
upfront license fees are deferred and recognized as revenue on a
straight-line basis over the expected term of the Company's
continued involvement in the research and development
process.
Deferred revenue
Deferred revenue
represents the funds received from clients, for which the revenues
have not yet been earned, as the milestones have not been achieved,
or in the case of upfront fees for drug development, where the work
remains to be completed. During the year ended November 30, 2016,
the Company received an up-front payment of $3,000,000 from
Mallinckrodt pursuant to the Mallinckrodt license and commercial
supply agreement, and initially recorded it as deferred revenue, as
it did not meet the criteria for recognition. For the three months
ended February 28, 2019, the Company recognized $75,000 (three
months ended February 28, 2018 - $75,000) of revenue based on a
straight-line basis over the expected term of the Mallinckrodt
agreement of 10 years.
As of February 28,
2019, the Company has recorded a deferred revenue balance of
$2,287,500 (November 30, 2018 - $2,362,500) relating to the
underlying contracts, of which $300,000 (November 30, 2018 -
$300,000) is considered a current portion of deferred
revenue.
(b)
Research and development costs
Research and
development costs related to continued research and development
programs are expensed as incurred in accordance with ASC topic 730.
However, materials and equipment are capitalized and amortized over
their useful lives if they have alternative future
uses.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
3.
Significant
accounting policies (continued)
Inventories
comprise raw materials, work in process, and finished goods, which
are valued at the lower of cost or market, on a first-in, first-out
basis. Cost for work in process and finished goods inventories
includes materials, direct labor, and an allocation of
manufacturing overhead. Market for raw materials is replacement
cost, and for work in process and finished goods is net realizable
value. The Company evaluates the carrying value of inventories on a
regular basis, taking into account such factors as historical and
anticipated future sales compared with quantities on hand, the
price the Company expects to obtain for products in their
respective markets compared with historical cost and the remaining
shelf life of goods on hand. As of February 28, 2019, the Company
had raw materials inventories of $123,875 (November 30, 2018 -
$144,659), work in process of $96,053 (November 30, 2018 - $73,927)
and finished goods inventory of $Nil (November 30, 2018 - $33,065)
relating to the Company’s generic Seroquel XR® product.
The recoverability of the cost of any pre-launch inventories with a
limited shelf life is evaluated based on the specific facts and
circumstances surrounding the timing of the anticipated product
launch.
(d)
Translation of foreign currencies
Transactions
denominated in currencies other than the Company and its wholly
owned operating subsidiaries’ functional currencies, monetary
assets and liabilities are translated at the period end rates.
Revenue and expenses are translated at rates of exchange prevailing
on the transaction dates. All of the exchange gains or losses
resulting from these other transactions are recognized in the
condensed unaudited interim consolidated statements of operations
and comprehensive loss.
The functional and
reporting currency of the Company and its subsidiaries is the U.S.
dollar.
(e)
Convertible debentures
In fiscal year
2013, the Company issued an unsecured convertible debenture in the
principal amount of $1,500,000 (the “2013 Debenture”).
At issuance, the conversion option was bifurcated from its host
contract and the fair value of the conversion option was
characterized as an embedded derivative upon issuance as it met the
criteria of ASC topic 815 Derivatives and Hedging. Subsequent
changes in the fair value of the embedded derivative were recorded
in the consolidated statements of operations and comprehensive
loss. The proceeds received from the 2013 Debenture less the
initial amount allocated to the embedded derivative were allocated
to the liability and were accreted over the life of the 2013
Debenture using the effective rate of interest. The Company changed
its functional currency effective December 1, 2013 such that the
conversion option no longer met the criteria for bifurcation and
was prospectively reclassified to shareholders’ equity under
ASC Topic 815 at the U.S. dollar translated amount at December 1,
2013.
On September 10,
2018, the Company completed a private placement financing (the
“2018 Debenture Financing”) of an unsecured convertible
debenture in the principal amount of $500,000 (the “2018
Debenture”). At issuance, the conversion price was lower than
the market share price, and the value of the beneficial conversion
feature related to the 2018 Debenture was allocated to
shareholders’ equity.
(f)
Investment tax credits
The investments tax
credits (“ITC") receivable are amounts considered recoverable
from the Canadian federal and provincial governments under the
Scientific Research & Experimental Development
(“SR&ED”) incentive program. The amounts claimed
under the program represent the amounts based on management
estimates of eligible research and development costs incurred
during the year. Realization is subject to government approval. Any
adjustment to the amounts claimed will be recognized in the year in
which the adjustment occurs. Refundable ITCs claimed relating to
capital expenditures are credited to property and equipment.
Refundable ITCs claimed relating to current expenditures are netted
against research and development expenditures.
(g)
Recently adopted accounting pronouncements
In August 2016, the
Financial Accounting Standards Board (“FASB”) issued
ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification
of Certain Cash Receipts and Cash Payments, which makes eight
targeted changes to how cash receipts and cash payments are
presented and classified in the Statement of Cash Flows. ASU
2016-15 became effective on May 1, 2018. The Company adopted ASU
2016-15 and the amendments did not have any material impact on the
Company’s financial position, results of operations, cash
flows or disclosures.
In May 2014, the
FASB issued ASU No. 2014-09, ASC 606, which establishes a single
comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. Under ASC 606, revenue is
recognized at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring control
of goods or services to a customer. The principles in ASC 606
provide a more structured approach to measuring and recognizing
revenue. As of December 1, 2018, the Company has adopted ASC 606
using the modified retrospective method and has elected to apply
the standard retrospectively only to contracts that are not
completed contracts at the date of initial application. The
adoption of ASC 606 did not have an impact on the date of
transition and did not have a material impact on the
Company’s condensed unaudited interim consolidated financial
statements for the three months ended February 28,
2019.
Page
10
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
3.
Significant
accounting policies (continued)
(g)
Recently adopted accounting pronouncements (continued)
In January 2016,
the FASB issued ASU No. 2016-01, which makes limited amendments to
the guidance in U.S. GAAP on the classification and measurement of
financial instruments. The new standard significantly revises an
entity’s accounting related to (1) the classification and
measurement of investments in equity securities and (2) the
presentation of certain fair value changes for financial
liabilities measured at fair value. It also amends certain
disclosure requirements associated with the fair value of financial
instruments. The Company has adopted ASU No. 2016-01 effective
December 1, 2018 and the adoption did not have an impact on the
date of transition or any material impact on the Company’s
condensed unaudited interim consolidated financial statements for
the three months ended February 28, 2019.
In August 2016, the
FASB issued ASU 2017-01 that changes the definition of a business
to assist entities with evaluating when a set of transferred assets
and activities is a business. The guidance requires an entity to
evaluate if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or a group
of similar identifiable assets; if so, the set of transferred
assets and activities is not a business. ASU 2017-01 also requires
a business to include at least one substantive process and narrows
the definition of outputs by more closely aligning it with how
outputs are described in ASC 606.1. ASU 2017-01 is effective for
public business entities for fiscal years beginning after December
15, 2017, and interim periods within those years. Early adoption is
permitted. The Company adopted ASU 2017-01 effective December 1,
2018 and the amendments did not have any material impact on the
Company’s financial position, results of operations, cash
flows or disclosures.
In May 2017, the
FASB issued ASU 2017-09 in relation to Compensation —Stock
Compensation (Topic 718), Modification Accounting. The amendments
provide guidance on changes to the terms or conditions of a
share-based payment award, which require an entity to apply
modification accounting in Topic 718. The amendments are effective
for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early
adoption is permitted, including adoption in any interim period,
for (1) public business entities for reporting periods for which
financial statements have not yet been issued and (2) all other
entities for reporting periods for which financial statements have
not yet been made available for issuance. The amendments should be
applied prospectively to an award modified on or after the adoption
date. The Company adopted ASU 2017-09 effective December 1, 2018
and the amendments did not have any material impact on the
Company’s financial position, results of operations, cash
flows or disclosures.
(h)
Future accounting pronouncements
In February 2016,
the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842).
The main difference between current U.S. GAAP and the new guidance
is the recognition of lease liabilities based on the present value
of remaining lease payments and corresponding lease assets for
operating leases under current U.S. GAAP with limited exception.
Additional qualitative and quantitative disclosures are also
required by the new guidance. Topic 842 is effective for annual
reporting periods (including interim reporting periods) beginning
after December 15, 2018. Early adoption is permitted. The Company
is in the process of evaluating the amendments to determine if they
have a material impact on the Company’s financial position,
results of operations, cash flows or disclosures.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
4.
Property
and equipment
|
|
|
|
|
|
Laboratory
equipment under capital lease
|
Computer
equipment under capital lease
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
Cost
|
|
|
|
|
|
|
|
|
Balance
at November 30, 2017
|
530,750
|
156,059
|
172,498
|
5,286,803
|
1,441,452
|
276,300
|
76,458
|
7,940,320
|
Additions
|
20,336
|
-
|
-
|
80,842
|
-
|
-
|
-
|
101,178
|
Balance
at November 30, 2018
|
551,086
|
156,059
|
172,498
|
5,367,645
|
1,441,452
|
276,300
|
76,458
|
8,041,498
|
Additions
|
3,790
|
-
|
-
|
-
|
-
|
-
|
-
|
3,790
|
Balance
at February 28, 2019
|
554,876
|
156,059
|
172,498
|
5,367,645
|
1,441,452
|
276,300
|
76,458
|
8,045,288
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
Balance
at November 30, 2017
|
286,483
|
131,128
|
119,990
|
2,669,232
|
1,192,946
|
198,798
|
74,192
|
4,672,769
|
Depreciation
|
77,179
|
12,465
|
10,501
|
413,576
|
82,835
|
15,500
|
680
|
612,736
|
Balance
at November 30, 2018
|
363,662
|
143,593
|
130,491
|
3,082,808
|
1,275,781
|
214,298
|
74,872
|
5,285,505
|
Depreciation
|
14,114
|
1,558
|
2,100
|
84,463
|
20,711
|
3,100
|
119
|
126,165
|
Balance
at February 28, 2019
|
377,776
|
145,151
|
132,591
|
3,167,271
|
1,296,492
|
217,398
|
74,991
|
5,411,670
|
|
|
|
|
|
|
|
|
|
Net book value at:
|
|
|
|
|
|
|
|
|
Balance
at November 30, 2018
|
$
187,424
|
$
12,466
|
$
42,007
|
$
2,284,837
|
$
165,671
|
$
62,002
|
$
1,586
|
$
2,755,993
|
Balance
at February 28, 2019
|
$
177,100
|
$
10,908
|
$
39,907
|
$
2,200,374
|
$
144,960
|
$
58,902
|
$
1,467
|
$
2,633,618
|
As at February 28,
2019, there was $595,589 (November 30, 2018 - $595,589) of
laboratory equipment that was not available for use and therefore,
no depreciation has been recorded for such laboratory equipment.
During the three months ended February 28, 2019 and 2018, the
Company recorded depreciation expense within cost of goods sold in
the amount of $881 and $Nil, respectively.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
5.
Due to related parties
Convertible debentures
Amounts due to the
related parties are payable to entities controlled by two
shareholders who are also officers and directors of the
Company.
|
|
|
Convertible
debenture payable to two directors and officers of the Company,
unsecured, 12% annual
interest rate,
payable monthly (“2013 Debenture”)
|
$
1,050,000
|
$
1,350,000
|
Convertible
debenture payable to two directors and officers of the Company,
unsecured, 10% annual
interest rate,
payable monthly (“2018 Debenture”)
|
$
448,295
|
$
440,358
|
|
$
1,498,295
|
$
1,790,358
|
On January 10,
2013, the Company completed a private placement financing of the
unsecured convertible 2013 Debenture (as defined above) in the
original principal amount of $1.5 million, which was originally due
to mature on January 1, 2015. The 2013 Debenture bears interest at
a rate of 12% per annum, payable monthly, is pre-payable at any
time at the option of the Company and is convertible at any time
into common shares at a conversion price of $30.00 per common share
at the option of the holder.
Dr. Isa Odidi and
Dr. Amina Odidi, shareholders, directors and executive officers of
the Company purchased the 2013 Debenture and provided the Company
with the original $1.5 million of the proceeds for the 2013
Debenture.
Effective October
1, 2014, the maturity date for the 2013 Debenture was extended to
July 1, 2015. Under ASC 470-50, the change in the debt instrument
was accounted for as a modification of debt. The increase in the
fair value of the conversion option at the date of the
modification, in the amount of $126,414, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 15% effective rate of
interest.
Effective June 29,
2015, the July 1, 2015 maturity date for the 2013 Debenture was
further extended to January 1, 2016. Under ASC 470-50, the change
in the maturity date for the debt instrument resulted in an
extinguishment of the original 2013 Debenture as the change in the
fair value of the embedded conversion option was greater than 10%
of the carrying amount of the 2013 Debenture. In accordance with
ASC 470-50-40, the 2013 Debenture was recorded at fair value. The
difference between the fair value of the convertible 2013 Debenture
after the extension and the net carrying value of the 2013
Debenture prior to the extension of $114,023 was recognized as a
loss on the statement of operations and comprehensive loss. The
carrying amount of the debt instrument was accreted to the face
amount of the 2013 Debenture over the remaining life of the 2013
Debenture using a 14.6% effective rate of interest.
Effective December
8, 2015, the January 1, 2016 maturity date for the 2013 Debenture
was further extended to July 1, 2016. Under ASC 470-50, the change
in the debt instrument was accounted for as a modification of debt.
The increase in the fair value of the conversion option at the date
of the modification, in the amount of $83,101, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 6.6% effective rate of
interest.
Effective May 26,
2016, the July 1, 2016 maturity date for the 2013 Debenture was
further extended to December 1, 2016. Under ASC 470-50, the change
in the debt instrument was accounted for as a modification of debt.
The increase in the fair value of the conversion option at the date
of the modification, in the amount of $19,808, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 4.2% effective rate of
interest.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
5.
Due to related parties (continued)
Convertible debentures (continued)
Effective December
1, 2016, the maturity date for the 2013 Debenture was further
extended to April 1, 2017 and a principal repayment of $150,000 was
made at the time of the extension. Under ASC 470-50, the change in
the debt instrument was accounted for as a modification of debt.
The increase in the fair value of the conversion option at the date
of the modification, in the amount of $106,962, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 26.3% effective rate of
interest.
Effective March 28,
2017, the maturity date for the 2013 Debenture was further extended
to October 1, 2017. Under ASC 470-50, the change in the debt
instrument was accounted for as a modification of debt. The
increase in the fair value of the conversion option at the date of
the modification, in the amount of $113,607, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 15.2% effective rate of
interest.
Effective September
28, 2017, the maturity date for the 2013 Debenture was further
extended to October 1, 2018. Under ASC 470-50, the change in the
debt instrument was accounted for as a modification of debt. The
increase in the fair value of the conversion option at the date of
the modification, in the amount of $53,227, was recorded as a
reduction in the carrying value of the debt instrument with a
corresponding increase to Additional paid-in-capital. The carrying
amount of the debt instrument was accreted over the remaining life
of the 2013 Debenture using a 4.9% effective rate of
interest.
Effective October
1, 2018, the maturity date for the 2013 Debenture was further
extended to April 1, 2019. Effective April 1, 2019, the maturity
date for the 2013 Debenture was further extended to May 1,
2019.
Under ASC 470-50,
the change in the debt instrument was accounted for as a
modification of debt. There was no change in the fair value of the
conversion option at the date of the modification. The carrying
amount of the debt instrument is accreted over the remaining life
of the 2013 Debenture using a nominal effective rate of interest.
In December 2018, a principal repayment of $300,000 was made on the
2013 Debenture to Drs. Isa and Amina Odidi.
On September 10,
2018, the Company completed a private placement financing of the
unsecured convertible 2018 Debenture (as defined above) in the
principal amount of $0.5 million. The 2018 Debenture will mature on
September 1, 2020. The 2018 Debenture bears interest at a rate of
10% per annum, payable monthly, is pre-payable at any time at the
option of the Company and is convertible at any time into common
shares of the Company at a conversion price of $3.00 per common
share at the option of the holder. Dr. Isa Odidi and Dr. Amina
Odidi, who are shareholders, directors and executive officers of
the Company provided the Company with the $0.5 million of the
proceeds for the 2018 Debenture.
At issuance, as the
conversion price was lower than the market share price, the
beneficial conversion feature valued at September 10, 2018 of
$66,667 was allocated to Additional paid-in capital. Subsequently,
the fair value of the 2018 Debenture is accreted over the remaining
life of the 2018 Debenture using an effective rate of interest of
7.3%.
Accreted interest
expense during the three months ended February 28, 2019 is $7,937
(three months ended February 28, 2018 - $15,971) and has been
included in the condensed unaudited interim consolidated statements
of operations and comprehensive loss. In addition, the coupon
interest on the 2013 Debenture and 2018 Debenture (collectively,
the “Debentures”) for the three months ended February
28, 2019 is $46,423 (three months ended February 28, 2018 –
$39,918) and has also been included in the condensed unaudited
interim consolidated statements of operations and comprehensive
loss.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
Authorized, issued and outstanding
(a)
The Company is
authorized to issue an unlimited number of common shares, all
without nominal or par value and an unlimited number of preference
shares. As at February 28, 2019, the Company had 21,925,577
(November 30, 2018 – 18,252,243) common shares issued and
outstanding and no preference shares issued and outstanding. Two
officers and directors of the Company owned directly and through
their family holding company 578,131 (November 30, 2018 –
578,131) common shares or approximately 2.6% (November 30, 2018
– 3.2%) of the issued and outstanding common shares of the
Company as at February 28, 2019.
(b)
In November 2013,
the Company entered into an equity distribution agreement with Roth
Capital Partners, LLC (“Roth”), pursuant to which the
Company originally could from time to time sell up to 530,548 of
the Company’s common shares for up to an aggregate of $16.8
million (or such lesser amount as may then be permitted under
applicable exchange rules and securities laws and regulations)
through at-the-market issuances on Nasdaq or otherwise. Under the
equity distribution agreement, the Company was able at its
discretion, from time to time, offer and sell common shares through
Roth or directly to Roth for resale to the extent permitted under
Rule 415 under the Securities Act of 1933, as amended, at such time
and at such price as were acceptable to the Company by means of
ordinary brokers’ transactions on Nasdaq or otherwise at
market prices prevailing at the time of sale or as determined by
the Company. The Company has paid Roth a commission, or allowed a
discount, of 2.75% of the gross proceeds that the Company received
from any sales of common shares under the equity distribution
agreement. The Company also agreed to reimburse Roth for certain
expenses relating to the at-the-market offering
program.
In March 2018, the
Company terminated its continuous offering under the prospectus
supplement dated July 18, 2017 and prospectus dated July 17, 2017
in respect of its at-the-market program.
The underwriting
agreement relating to the October 2018 offering described in Note
10 restricts the Company’s ability to use this equity
distribution agreement. It contains a prohibition on the Company:
(i) for a period of two years following the date of the
underwriting agreement, from directly or indirectly in any
at-the-market or continuous equity transaction, offer to sell, or
otherwise dispose of shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for its
shares of capital stock or (ii) for a period of five years
following the closing, effecting or entering into an agreement to
effect any issuance by the Company of common shares or common share
equivalents involving a certain variable rate transactions under an
at-the-market offering agreement, whereby the Company may issue
securities at a future determined price, except that, on or after
the date that is two years after the closing, the Company may enter
into an at-the-market offering agreement.
(c)
Direct costs
related to the Company’s filing of a base shelf prospectus
filed in May 2014 and declared effective in June 2014, direct costs
related to the base shelf prospectus filed in May 2017 and certain
other on-going costs related to the at the-market facility are
recorded as deferred offering costs and are being amortized and
recorded as share issuance costs against share
offerings.
(d)
In October 2017,
the Company completed a registered direct offering of 363,636
common shares at a price of $11.00 per share. The Company also
issued to the investors warrants to purchase an aggregate of
181,818 common shares (the “October 2017 Warrants”).
The warrants became exercisable six
months following the closing date, will expire 30 months after the
date they became exercisable
, have a term of three years and
have an exercise price of $12.50 per common share. The Company also
issued to the placement agents warrants to purchase 18,181 common
shares at an exercise price of $13.75 per share (the “October
2017 Placement Agent Warrants”). The holders of October 2017
Warrants and October 2017 Placement Agent Warrants are entitled to
a cashless exercise under which the number of shares to be issued
will be based on the number of shares for which warrants are
exercised times the difference between the market price of the
common share and the exercise price divided by the market price.
The October 2017 Warrants and the October 2017 Placement Agent
Warrants are considered to be indexed to the Company’s own
stock and are therefore classified as equity under ASC topic 480
Distinguishing Liabilities from Equity.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
6.
Capital
stock (continued)
Authorized, issued and outstanding (continued)
The Company
recorded $3,257,445 as the value of common shares under Capital
stock and $742,555 as the value of the October 2017 Warrants under
Additional paid-in-capital in the consolidated statements of
shareholders’ equity (deficiency). The Company has disclosed
the terms used to value the warrants in Note 9.
The direct costs
related to the issuance of the common shares, October 2017 Warrants
and October 2017 Placement Agent Warrants were $500,492 and were
recorded as an offset against the statement of shareholders’
equity (deficiency) with $391,580 being recorded under Capital
stock and $108,912 being recorded under Additional
paid-in-capital.
(e)
In March 2018, the
Company completed two registered direct offerings of an aggregate
of 883,333 common shares at a price of $6.00 per share. The Company
also issued to the investors warrants to purchase an aggregate of
441,666 common shares (the “March 2018 Warrants”).
The warrants became exercisable six
months following the closing date, will expire 30 months after the
date they became exercisable
, and have an exercise price of
$6.00 per common share. The Company also issued to the placement
agents warrants to purchase 44,166 common shares at an exercise
price of $7.50 per share (the “March 2018 Placement Agent
Warrants”). The holders of March 2018 Warrants and March 2018
Placement Agent Warrants are entitled to a cashless exercise under
which the number of shares to be issued will be based on the number
of shares for which warrants are exercised times the difference
between the market price of the common share and the exercise price
divided by the market price. The March 2018 Warrants and March 2018
Placement Agent Warrants are considered to be indexed to the
Company’s own stock and are therefore classified as equity
under ASC topic 480 Distinguishing Liabilities from
Equity.
The Company
recorded $4,184,520 as the value of common shares under Capital
stock and $1,115,480 as the value of the March 2018 Warrants under
Additional paid-in-capital in the consolidated statements of
shareholders’ equity (deficiency). The Company has disclosed
the terms used to value the warrants in Note 9.
The direct costs
related to the issuance of the common shares and warrants were
$831,357 including the cost of warrants issued to the placement
agents. These direct costs were recorded as an offset against the
statement of shareholders’ equity (deficiency) with $656,383
being recorded under Capital stock and $174,974 being recorded
under Additional paid-in-capital.
(f)
In October 2018,
the Company completed an underwritten public offering in the United
States, resulting in the sale to the public of 827,970 Units at
$0.75 per Unit, which were comprised of one common share and one
warrant (the “2018 Unit Warrants”) exercisable at $0.75
per share. The Company concurrently sold an additional 1,947,261
common shares and warrants to purchase 2,608,695 common shares
exercisable at $0.75 per share (the “2018 Option
Warrants’) pursuant to the overallotment option exercised in
part by the underwriter. The price of the common shares issued in
connection with exercise of the overallotment option was $0.74 per
share and the price for the warrants issued in connection with the
exercise of the overallotment option was $0.01 per warrant, less in
each case the underwriting discount. In addition, the Company
issued 16,563,335 pre-funded units (“2018 Pre-Funded
Units’), each 2018 Pre-Funded Unit consisting of one
pre-funded warrant (a “2018 Pre-Funded Warrant”) to
purchase one common share and one warrant (a “2018
Warrant”, and together with the 2018 Unit Warrants and the
2018 Option Warrants, the “2018 Firm Warrants”) to
purchase one common share. The 2018 Pre-Funded Units were offered
to the public at $0.74 each and a 2018 Pre-Funded Warrant is
exercisable at $0.01 per share. Each 2018 Firm Warrant is
exercisable immediately and has a term of five years and each 2018
Pre-Funded Warrant is exercisable immediately and until all 2018
Pre-Funded Warrants are exercised. The Company also issued warrants
to the placement agents to purchase 1,160,314 common shares at an
exercise price of $0.9375 per share (the “October 2018
Placement Agent Warrants”), which were exercisable
immediately upon issuance. In aggregate, the Company issued
2,775,231 common shares, 16,563,335 2018 Pre-Funded Warrants and
20,000,000 2018 Firm Warrants in addition to 1,160,314 October 2018
Placement Agent Warrants.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
6.
Capital stock (continued)
Authorized, issued and outstanding (continued)
The Company raised
$14,344,906 in gross proceeds as part of October 2018 underwritten
public offering. The Company recorded $1,808,952 as the value of
common shares under Capital stock and $279,086 as the value of the
2018 Firm Warrants and $12,256,868 as the value of the 2018
Pre-Funded Warrants under Additional paid-in-capital in the
consolidated statements of shareholders’ equity (deficiency).
During the year ended November 30, 2018, 12,153,334 2018 Pre-Funded
Warrants were exercised for proceeds of $121,553, and the Company
recorded a charge of $4,262,526 from Additional paid in capital to
common shares under Capital stock. During the three months ended
February 28, 2019, 2,643,334 common shares were issued upon the
exercise of 2018 Pre-Funded Warrants and 1,030,000 common shares
were issued in respect of 2018 Pre-Funded Warrants which were
exercised as of November 30, 2018 but for which common shares were
not yet issued as of November 30, 2018. As of February 28, 2019, no
other 2018 Firm Warrants or 2018 Pre-Funded Warrants had been
exercised. The Company has disclosed the terms used to value these
warrants in Note 9.
The direct costs
related to the issuance of the common shares and warrants issued in
October 2018 were $2,738,710 including the cost of October 2018
Placement Agent Warrants in the amount of $461,697. These direct
costs were recorded as an offset against the statement of
shareholders’ equity (deficiency) with $345,363 being
recorded under Capital stock and $2,393,347 being recorded under
Additional paid-in-capital.
All grants of
options to employees after October 22, 2009 are made from the
Employee Stock Option Plan (the “Employee Stock Option
Plan”). The maximum number of common shares issuable under
the Employee Stock Option Plan is limited to 10% of the issued and
outstanding common shares of the Company from time to time, or
2,192,557 based on the number of issued and outstanding common
shares as at February 28, 2019. As at February 28, 2019, 277,257
options are outstanding and there were 1,915,300 options available
for grant under the Employee Stock Option Plan. Each option granted
allows the holder to purchase one common share at an exercise price
not less than the closing price of the Company's common shares on
the TSX on the last trading day prior to the grant of the option.
Options granted under these plans typically have a term of 5 years
with a maximum term of 10 years and generally vest over a period of
up to three years.
In August 2004, the
Board of Directors of IPC Ltd. approved a grant of 276,394
performance-based stock options, to two executives who were also
the principal shareholders of IPC Ltd. The vesting of these options
is contingent upon the achievement of certain performance
milestones. A total of 276,394 performance-based stock options have
vested as of February 28, 2019. Under the terms of the original
agreement these options were to expire in September 2014. Effective
March 27, 2014, the Company’s shareholders approved the two
year extension of the performance-based stock option expiry date to
September 2016. Effective April 19, 2016, the Company’s
shareholders approved a further two year extension of the
performance-based stock option expiry date to September 2018.
Effective May 15, 2018, the Company’s shareholders approved a
further two year extension of the performance-based stock option
expiry date to September 2020. These options were outstanding as at
February 28, 2019.
In the three months
ended February 28, 2019, Nil (three months ended February 28, 2018
– Nil) stock options were granted.
The fair value of
each option grant is estimated on the date of grant using the
Black-Scholes Option-Pricing Model, consistent with the provisions
of ASC topic 718.
Option pricing
models require the use of subjective assumptions, changes in these
assumptions can materially affect the fair value of the
options.
The Company
calculates expected volatility based on historical volatility of
the Company’s peer group that is publicly traded for options
that have an expected life that is more than nine years. For
options that have an expected life of less than nine years the
Company uses its own volatility.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
The expected term,
which represents the period of time that options granted are
expected to be outstanding, is estimated based on the historical
average of the term and historical exercises of the
options.
The risk-free rate
assumed in valuing the options is based on the U.S. treasury yield
curve in effect at the time of grant for the expected term of the
option. The expected dividend yield percentage at the date of grant
is Nil as the Company is not expected to pay dividends in the
foreseeable future.
Details of stock
option transactions in Canadian dollars (“C$”) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
$
|
#
|
$
|
$
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
555,651
|
37.70
|
16.69
|
582,811
|
36.90
|
17.20
|
Forfeiture
|
(2,000
)
|
14.93
|
8.19
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
(15,828
)
|
54.20
|
39.20
|
Balance
at end of period
|
553,651
|
37.54
|
16.73
|
566,984
|
36.30
|
16.60
|
|
|
|
|
|
|
|
Options
exercisable end of period
|
543,952
|
38.01
|
16.92
|
506,278
|
37.40
|
17.20
|
Total unrecognized
compensation cost relating to the unvested performance-based stock
options at February 28, 2019 is $Nil (February 28, 2018 -
$788,887).
For the three
months ended February 28, 2019 and 2018, no options were
exercised.
The following table
summarizes the components of stock-based compensation
expense.
|
For the
three months ended
|
|
|
|
|
$
|
$
|
Research
and development
|
3,501
|
11,039
|
Selling,
general and administrative
|
(1,227
)
|
20,649
|
|
2,274
|
31,688
|
The Company has
estimated its stock option forfeitures to be approximately 4% at
February 28, 2019 (three months ended February 28, 2018 –
4%).
8.
Deferred share units
Effective
May 28, 2010, the Company’s shareholders approved a
Deferred Share Unit (“DSU”) Plan to grant DSUs to its
non-management directors and reserved a maximum of 11,000 common
shares for issuance under the plan. The DSU Plan permits certain
non-management directors to defer receipt of all or a portion of
their board fees until termination of the board service and to
receive such fees in the form of common shares at that time. A DSU
is a unit equivalent in value to one common share of the Company
based on the trading price of the Company's common shares on the
TSX.
Upon termination of
board service, the director will be able to redeem DSUs based upon
the then market price of the Company's common shares on the date of
redemption in exchange for any combination of cash or common shares
as the Company may determine.
During the three
months ended February 28, 2019 and 2018, no non-management board
members elected to receive director fees in the form of DSUs under
the Company’s DSU Plan. As at February 28, 2019, 10,279
(February 28, 2018 – 10,279) DSUs are outstanding and 721
(February 28, 2018 – 721) DSUs are available for grant under
the DSU Plan. The Company recorded the following amounts
related
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
8.
Deferred share units (continued)
to DSUs for each of
the three months ended February 28, 2019 and three months ended
February 28, 2018 in additional paid in capital and accrued the
following amounts as at February 28, 2019 and February 28,
2018:
|
For the
three months ended
|
|
|
|
|
$
|
|
$
|
|
Additional
paid in capital
|
-
|
-
|
7,565
|
8,660
|
Accrued
liability
|
-
|
-
|
-
|
-
|
All of the
Company’s outstanding warrants are considered to be indexed
to the Company’s own stock and are therefore classified as
equity under ASC 480. The warrants, in specified situations,
provide for certain compensation remedies to a holder if the
Company fails to timely deliver the shares underlying the warrants
in accordance with the warrant terms.
In the underwritten
public offering completed in June 2016, gross proceeds of
$5,200,000 were received through the sale of the Company’s
units comprised of common shares and warrants. The Company issued
at the initial closing of the offering an aggregate of 322,981
common shares and warrants to purchase an additional 161,490 common
shares, at a price of $16.10 per unit. The warrants are currently
exercisable, have a term of five years and an exercise price of
$19.30 per common share. The underwriter also purchased at such
closing additional warrants (collectively with the warrants issued
at the initial closing, the “June 2016 Warrants”) at a
purchase price of $0.01 per warrant to acquire 24,223 common shares
pursuant to the overallotment option exercised in part by the
underwriter. The Company subsequently sold an aggregate of 45,946
additional common shares at the public offering price of $16.10 per
share in connection with subsequent partial exercises of the
underwriter’s overallotment option. The fair value of the
June 2016 Warrants of $1,175,190 was initially estimated at closing
using the Black-Scholes Option Pricing Model, using volatility of
64.1%, risk free interest rates of 0.92%, expected life of 5 years,
and dividend yield of Nil. The June 2016 Warrants currently
outstanding are detailed below.
In the registered
direct offering completed in October 2017, gross proceeds of
$4,000,000 were received through the sale of the Company’s
common shares and warrants. The Company issued at the closing of
the offering an aggregate of 363,636 common shares at a price of
$11.00 per share and warrants to purchase an additional 181,818
common shares (the “October 2017 Warrants”).
The October 2017 Warrants became
exercisable six months following the closing date, will expire 30
months after the date they became exercisable
, and have an
exercise price of $12.50 per common share. The Company also issued
the October 2017 Placement Agents Warrants to purchase 18,181
common shares at an exercise price of $13.75 per share. The holders
of October 2017 Warrants and October 2017 Placement Agent Warrants
are entitled to a cashless exercise under which the number of
shares to be issued will be based on the number of share for which
warrants are exercised times the difference between the market
price of the common share and the exercise price divided by the
market price. The fair value of the October 2017 Warrants of
$742,555 was initially estimated at closing using the Black-
Scholes Option Pricing Model, using volatility of 73.67%, risk free
interest rates of 1.64%, expected life of 3 years, and dividend
yield of Nil.
The fair value of
the October 2017 Placement Agents Warrants was estimated at $86,196
using the Black-Scholes Option Pricing Model, using volatility of
73.67%, a risk free interest rate of 1.64%, an expected life of 3
years, and a dividend yield of Nil.
The October 2017
Warrants and the October 2017 Placement Agent Warrants currently
outstanding are detailed below.
In the two
registered direct offerings completed in March 2018, gross proceeds
of $5,300,000 were received through the sale of the Company’s
common shares and warrants. The Company issued at the closing of
the offering an aggregate of 883,333 common shares at a price of
$6.00 per share and the March 2018 Warrants to purchase an
additional 441,666 common shares.
The
March 2018 Warrants
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
became exercisable six months following the
closing date, will expire 30 months after the date they became
exercisable
and have an exercise price of $6.00 per common
share. The Company also issued the March 2018 Placement Agent
Warrants to purchase 44,166 common shares at an exercise price of
$7.50 per share. The holders of March 2018 Warrants and March 2018
Placement Agent Warrants are entitled to a cashless exercise under
which the number of shares to be issued will be based on the number
of share for which warrants are exercised times the difference
between the market price of the common share and the exercise price
divided by the market price. The fair value of the March 2018
Warrants of $1,115,480 was initially estimated at closing using the
Black- Scholes Option Pricing Model, using volatility of 70%, risk
free interest rates of 2.44% and 2.46%, expected life of 3 years,
and dividend yield of Nil.
The fair value of
the March 2018 Placement Agent Warrants was estimated at $141,284
using the Black-Scholes Option Pricing Model, using volatility of
70%, risk free interest rates of 2.44% and 2.46%, an expected life
of 3 years, and a dividend yield of Nil. The March 2018 Warrants
and the March 2018 Placement Agent Warrants currently outstanding
are detailed below.
In October 2018,
the Company completed an underwritten public offering in the United
States, resulting in the sale to the public of 827,970 Units at
$0.75 per Unit, which are comprised of one common share and one
2018 Unit Warrant (as defined above) exercisable at $0.75 per
share. The Company concurrently sold an additional 1,947,261 common
shares and 2018 Option Warrants to purchase 2,608,695 common shares
exercisable at $0.75 per share pursuant to the overallotment option
exercised in part by the underwriter. The price of the common
shares issued in connection with exercise of the overallotment
option was $0.74 per share and the price for the warrants issued in
connection with the exercise of the overallotment option was $0.01
per warrant, less in each case the underwriting discount. In
addition, the Company issued 16,563,335 2018 Pre-Funded Units (as
defined above), each 2018 Pre-Funded Unit consisting of one 2018
Pre-Funded Warrant (as defined above) to purchase one common share
and one 2018 Warrant (as defined above) to purchase one common
share. The 2018 Pre-Funded Units were offered to the public at
$0.74 each and a 2018 Pre-Funded Warrant is exercisable at $0.01
per share. Each 2018 Firm Warrant is exercisable immediately and
has a term of five years and each 2018 Pre-Funded Warrant is
exercisable immediately and until all 2018 Pre-Funded Warrants are
exercised. The Company also issued the October 2018 Placement Agent
Warrants to the placement agents to purchase 1,160,314 common
shares at an exercise price of $0.9375 per share, which were
exercisable immediately upon issuance. In aggregate, in October
2018, the Company issued 2,775,231 common shares, 16,563,335 2018
Pre-Funded Warrants and 20,000,000 2018 Firm Warrants in addition
to 1,160,314 October 2018 Placement Agent Warrants.
The fair value of
the 2018 Firm Warrants of $279,086 was initially estimated at
closing using the Black-Scholes Option Pricing Model, using
volatility of 92%, risk free interest rates of 3.02%, expected life
of 5 years, and dividend yield of Nil. The fair value of the
October 2018 Placement Agents Warrants was estimated at $461,697
using the Black-Scholes Option Pricing Model, using volatility of
92%, risk free interest rates of 3.02%, an expected life of 5
years, and a dividend yield of Nil.
The fair value of
the 2018 Pre-Funded Warrant of $12,256,868 and the fair value of
the 2018 Firm Warrants of $279,086, respectively, were recorded
under Additional paid-in-capital in the consolidated statements of
shareholders’ equity (deficiency).
During the three
months ended February 28, 2019, 2,643,334 (three months ended
February 28, 2018 – Nil) 2018 Pre-Funded Warrants were
exercised for proceeds of $26,454 (three months ended February 28,
2018 - $Nil), and the Company recorded a charge of $927,095 (three
months ended February 28, 2018 - $Nil) from Additional
paid-in-capital to common shares under Capital stock. During the
three months ended February 28, 2019, 1,030,000 common shares were
issued in respect of 2018 Pre-Funded Warrants which were exercised
as of November 30, 2018 but for which common shares were not yet
issued as of November 30, 2018.
As at February 28,
2019, 1,766,667 2018 Pre-Funded Warrants are outstanding which are
exercisable immediately at $0.01 per share. In addition, the
following table provides information on the 23,890,290 warrants
including 2018 Firm Warrants outstanding and exercisable as of
February 28, 2019:
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
|
|
|
|
|
Warrant
|
|
|
Expiry
|
|
June
2016 Warrants
|
$
19.30
|
277,478
|
June
2, 2021
|
138,739
|
October
2017 Warrants
|
$
12.50
|
181,818
|
October
13, 2020
|
181,818
|
October
2017 Placement
|
|
|
|
|
Agent
Warrants
|
$
13.75
|
18,181
|
October
13, 2020
|
18,181
|
March
2018 Warrants
|
$
6.00
|
291,666
|
March
16, 2021
|
291,666
|
March
2018 Warrants
|
$
6.00
|
150,000
|
March
21, 2021
|
150,000
|
March
2018 Placement
|
|
|
|
|
Agent
Warrants
|
$
7.50
|
29,166
|
March
16, 2021
|
29,166
|
March
2018 Placement
|
|
|
|
|
Agent
Warrants
|
$
7.50
|
15,000
|
March
21, 2021
|
15,000
|
2018
Firm Warrants
|
$
0.75
|
20,000,000
|
October
16, 2023
|
20,000,000
|
2018
Pre-Funded Warrants
|
$
0.01
|
1,766,667
|
October
16, 2023
|
1,766,667
|
October
2018 Placement
|
|
|
|
|
Agent
Warrants
|
$
0.9375
|
1,160,314
|
October
16, 2023
|
1,160,314
|
|
|
23,890,290
|
|
23,751,551
|
During the three
months ended February 28, 2019, other than 2018 Pre-Funded Warrants
as noted above, there were no cash exercises in respect of warrants
(three months ended February 28, 2018 – Nil) and no cashless
exercise (three months ended February 28, 2018 - Nil) of warrants,
resulting in the issuance of Nil (three months ended February 28,
2018 – Nil) and Nil (three months ended February 28, 2018 -
Nil) common shares, respectively.
Details of warrant
transactions are as follows:
|
Outstanding,
December
1, 2018
|
|
|
|
Outstanding,
February 28, 2019
|
June
2016 Warrants
|
277,478
|
-
|
-
|
-
|
277,478
|
October
2017 Warrants
|
181,818
|
-
|
-
|
-
|
181,818
|
October
2017 Placement
|
|
|
|
|
|
Agent
Warrants
|
18,181
|
-
|
-
|
-
|
18,181
|
March
2018 Warrants
|
441,666
|
-
|
-
|
-
|
441,666
|
March
2018 Placement
|
|
|
|
|
|
Agent
Warrants
|
44,166
|
-
|
-
|
-
|
44,166
|
2018
Firm Warrants
|
20,000,000
|
-
|
-
|
-
|
20,000,000
|
2018
Pre-Funded Warrants
|
4,410,001
|
-
|
-
|
(2,643,334
)
|
1,766,667
|
October
2018 Placement
|
|
|
|
|
|
Agent
Warrants
|
1,160,314
|
-
|
-
|
-
|
1,160,314
|
|
26,533,624
|
-
|
-
|
(2,643,334
)
|
23,890,290
|
|
|
|
|
|
|
|
Outstanding,
December 1, 2017
|
149,174
|
87,000
|
277,872
|
181,818
|
18,181
|
714,045
|
|
|
|
|
|
|
|
Outstanding,
February 28,
2018
|
149,174
|
87,000
|
277,872
|
181,818
|
18,181
|
714,045
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
10.
Income taxes
The Company has had
no taxable income under the Federal and Provincial tax laws of
Canada for the three months ended February 28, 2019 and February
28, 2018. The Company has non-capital loss carry-forwards at
February 28, 2019, totaling $47,805,175 in Canada that must be
offset against future taxable income. If not utilized, the loss
carry-forwards will expire between 2028 and 2038.
For the three
months ended February 28, 2019, the Company had a cumulative
carry-forward pool of Canadian Federal Scientific Research &
Experimental Development expenditures in the amount of $18,400,000
which can be carried forward indefinitely.
For the three
months ended February 28, 2019, the Company had approximately
$3,500,000 of unclaimed Investment Tax Credits which expire from
2025 to 2038. These credits are subject to a full valuation
allowance as they are not more likely than not to be
realized.
11.
Contingencies
From
time to time, the Company may be exposed to claims and legal
actions in the normal course of business. As at February 28, 2019,
and continuing as at April 15, 2019, the Company is not aware of
any pending or threatened material litigation claims against the
Company, other than as described below.
In
November 2016, the Company filed an NDA for its abuse-deterrent
oxycodone hydrochloride extended release tablets (formerly referred
to as RexistaTM) (“Oxycodone ER”) product candidate,
relying on the 505(b)(2) regulatory pathway, which allowed the
Company to reference data from Purdue Pharma L.P.'s file for its
OxyContin® extended release oxycodone hydrochloride. The
Oxycodone ER application was accepted by the FDA for further review
in February 2017. The Company certified to the FDA that it believed
its Oxycodone ER product candidate would not infringe any of the
OxyContin® patents listed in the FDA's Approved Drug Products
with Therapeutic Equivalence Evaluations, commonly known as the
"Orange Book", or that such patents are invalid, and so notified
Purdue Pharma L.P. and the other owners of the subject patents
listed in the Orange Book of such certification. On April 7, 2017,
the Company received notice that Purdue Pharma L.P., Purdue
Pharmaceuticals L.P., The P.F. Laboratories, Inc., or collectively
the Purdue parties, Rhodes Technologies, and Grünenthal GmbH,
or collectively the Purdue litigation plaintiffs, had commenced
patent infringement proceedings against the Company in the U.S.
District Court for the District of Delaware (docket number 17-392)
in respect of the Company’s NDA filing for Oxycodone ER,
alleging that its proposed Oxycodone ER infringes 6 out of the 16
patents associated with the branded product OxyContin®, or the
OxyContin® patents, listed in the Orange Book. The complaint
seeks injunctive relief as well as attorneys' fees and costs and
such other and further relief as the Court may deem just and
proper. An answer and counterclaim have been filed.
Subsequent
to the above-noted filing of lawsuit, 4 further such patents were
listed and published in the Orange Book. The Company then similarly
certified to the FDA concerning such further patents. On March 16,
2018, the Company received notice that the Purdue litigation
plaintiffs had commenced further such patent infringement
proceedings against the Company adding the 4 further patents. This
lawsuit is also in the District of Delaware federal court under
docket number 18-404.
As
a result of the commencement of the first of these legal
proceedings, the FDA is stayed for 30 months from granting final
approval to the Company’s Oxycodone ER product candidate.
That time period commenced on February 24, 2017, when the Purdue
litigation plaintiffs received notice of the Company’s
certification concerning the patents, and will expire on August 24,
2019, unless the stay is earlier terminated by a final declaration
of the courts that the patents are invalid, or are not infringed,
or the matter is otherwise settled among the parties.
On
or about June 26, 2018 the court issued an order to sever 6
overlapping patents from the second Purdue case, but ordered
litigation to proceed on the 4 new (2017-issued) patents. An answer
and counterclaim was filed July 9, 2018. The existence and
publication of additional patents in the Orange Book, and
litigation arising therefrom, is an ordinary and to be expected
occurrence in the course of such litigation.
On
July 6, 2018 the court issued a so-called “Markman”
claim construction ruling on the first case and the October 22,
2018 trial date remained unchanged. The Company believes that it
has non-infringement
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
11.
Contingencies
(continued)
and/or
invalidity defenses to all of the asserted claims of the subject
patents in both of the cases and will vigorously defend against
these claims.
On July 24, 2018, the parties mutually agreed to
and did have dismissed without prejudice the
infringe
ment claims related to
the Grünenthal ‘060 patent. The Grünenthal
‘060 patent is one of the six patents included in the
original litigation case, however, the dismissal does not by itself
result in a termination of the 30-month litigation
stay.
On October 4, 2018, the parties mutually agreed to
postpone the scheduled court date pending a case status conference
scheduled for December 17, 2018. At that time, further trial
scheduling and other administrative matters were postponed pending
the Company’s resubmission of the Oxycodone ER NDA to the
FDA, which was made on February 28, 2019.
On
January 17, 2019, the court issued a scheduling order in which the
remaining major portions are scheduled. The trial is scheduled for
June 2020.
On
April 4, 2019, the U.S. Federal Circuit Court of Appeal affirmed
the invalidity of one Purdue Oxycontin patent. This patent claimed
a core matrix containing PEO and magnesium stearate, which is then
heated. The invalidity ruling reduces another patent from the
original litigation case. However it does not, by itself, eliminate
the 30 month litigation stay in either docketed case.
In July 2017, three
complaints were filed in the U.S. District Court for the Southern
District of New York that were later consolidated under the caption
Shanawaz v. Intellipharmaceutics Int’l Inc., et al., No.
1:17-cv-05761 (S.D.N.Y.). The lead plaintiffs filed a consolidated
amended complaint on January 29, 2018. In the amended complaint,
the lead plaintiffs assert claims on behalf of a putative class
consisting of purchasers of the Company’s securities between
May 21, 2015 and July 26, 2017. The amended complaint alleges that
the defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by
making allegedly false and misleading statements or failing to
disclose certain information regarding the Company’s NDA for
Oxycodone ER abuse-deterrent oxycodone hydrochloride extended
release tablets. The complaint seeks, among other remedies,
unspecified damages, attorneys’ fees and other costs,
equitable and/or injunctive relief, and such other relief as the
court may find just and proper.
On March 30, 2018,
the Company and the other defendants filed a motion to dismiss the
amended complaint for failure to state a valid claim. The
defendants’ motion to dismiss was granted in part, and denied
in part, in an Order dated December 17, 2018. In its Order, the
court dismissed certain of the plaintiffs' securities claims to the
extent that the claims were based upon statements describing the
Oxycodone ER product’s abuse-deterrent features and its
bioequivalence to OxyContin. However, the court allowed the claims
to proceed to the extent plaintiffs challenged certain public
statements describing the contents of the Company’s Oxycodone
ER NDA. Defendants filed an answer to the amended complaint
on January 7, 2019. On February 5, 2019, the court held an initial
pretrial conference and entered a scheduling order governing
discovery and class certification. Discovery is ongoing and is
likely to continue until late 2019. The Company and the other
defendants intend to vigorously defend themselves against the
remainder of the claims asserted in the consolidated
action.
On February 21,
2019, the Company and its CEO, Dr. Isa Odidi
(“Defendants”), were served with a Statement of Claim
filed in the Superior Court of Justice of Ontario
(“Court”) for a proposed class action under the Ontario
Class Proceedings Act (“Action”). The Action was
brought by Victor Romita, the proposed representative plaintiff
(“Plaintiff”), on behalf of a class of Canadian persons
(“Class”) who traded shares of the Company during the
period from February 29, 2016 to July 26, 2017
(“Period”). The Statement of Claim, under the caption
Victor Romita v.
Intellipharmaceutics International Inc. and Isa Odidi
,
asserts that the Defendants knowingly or negligently made certain
public statements during the Period that contained or omitted
material facts concerning Oxycodone ER abuse-deterrent oxycodone
hydrochloride extended release tablets. The Plaintiff alleges that
he and the Class suffered loss and damages as a result of their
trading in the Company’s shares during the Period. The
Plaintiff seeks, among other remedies, unspecified damages, legal
fees and court and other costs as the Court may permit. On February
26, 2019, the Plaintiff delivered a Notice of Motion seeking the
required approval from the Court, in accordance with procedure
under the Ontario Securities Act, to allow the statutory claims
under the Ontario Securities Act to proceed with respect to the
claims based upon the acquisition or disposition of the
Company’s shares on the Toronto Stock Exchange during the
Period. No date has been set for the hearing of the Notice of
Motion. No date has been set for the hearing of the certification
application. The Defendants intend to vigorously defend the action
and have filed a Notice of Intent to Defend.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
12.
Financial instruments
(a) Fair
values
The Company follows
ASC topic 820, “Fair Value Measurements” which defines
fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The provisions
of ASC topic 820 apply to other accounting pronouncements that
require or permit fair value measurements. ASC topic 820 defines
fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants at the
measurement date; and establishes a three level hierarchy for fair
value measurements based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement
date.
As of December 1,
2018, the Company has adopted ASU No. 2016-01, which makes limited
amendments to the guidance in U.S. GAAP on the classification and
measurement of financial instruments. The new standard
significantly revises an entity’s accounting related to (1)
the classification and measurement of investments in equity
securities and (2) the presentation of certain fair value changes
for financial liabilities measured at fair value. It also amends
certain disclosure requirements associated with the fair value of
financial instruments. The adoption did not have an impact on the
date of transition and did not have a material impact to our
condensed unaudited interim consolidated financial statements for
the three months ended February 28, 2019.
Inputs refers
broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk.
To increase consistency and comparability in fair value
measurements and related disclosures, the fair value hierarchy
prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels. The three levels of the hierarchy
are defined as follows:
Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets
or liabilities.
Level 2 inputs are
inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly for substantially the full term of the financial
instrument.
Level 3 inputs are
unobservable inputs for asset or liabilities.
The categorization
within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value
measurement.
(i)
The Company
calculates expected volatility based on historical volatility of
the Company’s peer group that is publicly traded for options
that have an expected life that is more than nine years (Level 2)
while the Company uses its own historical volatility for options
that have an expected life of nine years or less (Level
1).
(ii)
The Company
calculates the interest rate for the conversion option based on the
Company’s estimated cost of raising capital (Level
2).
An
increase/decrease in the volatility and/or a decrease/increase in
the discount rate would have resulted in an increase/decrease in
the fair value of the conversion option and warrants.
Fair value of
financial assets and financial liabilities that are not measured at
fair value on a recurring basis are as follows:
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
12.
Financial
instruments (continued)
(a)
Fair values (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Financial
Liabilities
|
|
|
|
|
Convertible debentures
(i)
|
1,498,295
|
1,512,729
|
1,790,358
|
1,795,796
|
(i) The
Company calculates the interest rate for the Debentures and due to
related parties based on the Company’s estimated cost of
raising capital and uses the discounted cash flow model to
calculate the fair value of the Debentures and the amounts due to
related parties.
The carrying values
of cash, accounts receivable, accounts payable, accrued liabilities
and employee cost payable approximates their fair values because of
the short-term nature of these instruments.
(b)
Interest rate and credit risk
Interest rate risk
is the risk that the value of a financial instrument might be
adversely affected by a change in interest rates. The Company does
not believe that the results of operations or cash flows would be
affected to any significant degree by a sudden change in market
interest rates, relative to interest rates on cash and the
convertible debenture due to the short-term nature of these
obligations.
Trade accounts
receivable potentially subjects the Company to credit risk. The
Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of
accounts receivable.
The following table
sets forth details of the aged accounts receivable that are not
overdue as well as an analysis of overdue amounts and the related
allowance for doubtful accounts:
|
|
|
|
|
|
|
$
|
$
|
Total
accounts receivable
|
281,828
|
305,912
|
Less
allowance for doubtful accounts
|
(66,849
)
|
(66,849
)
|
Total
accounts receivable, net
|
214,979
|
239,063
|
|
|
|
Not
past due
|
214,979
|
239,063
|
Past
due for more than 31 days
|
|
|
but
no more than 120 days
|
-
|
-
|
Past
due for more than 120 days
|
66,849
|
66,849
|
Total
accounts receivable, gross
|
281,828
|
305,912
|
Financial
instruments that potentially subject the Company to concentration
of credit risk consist principally of uncollateralized accounts
receivable. The Company’s maximum exposure to credit risk is
equal to the potential amount of financial assets. For the three
months ended February 28, 2019
and 2018, two
customers accounted for substantially all the revenue and all the
accounts receivable of the Company. The Company is also exposed to
credit risk at period end from the carrying value of its cash. The
Company manages this risk by maintaining bank accounts with a
Canadian Chartered Bank. The Company’s cash is not subject to
any external restrictions.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
12.
Financial instruments (continued)
(c)
Foreign exchange risk
The Company has
balances in Canadian dollars that give rise to exposure to foreign
exchange risk relating to the impact of translating certain
non-U.S. dollar balance sheet accounts as these statements are
presented in U.S. dollars. A strengthening U.S. dollar will lead to
a foreign exchange loss while a weakening U.S. dollar will lead to
a foreign exchange gain. For each Canadian dollar balance of
$1.0 million, a +/- 10% movement in the Canadian currency held
by the Company versus the U.S. dollar would affect the
Company’s loss and other comprehensive loss by
$0.1 million.
(d) Liquidity risk
Liquidity risk is
the risk that the Company will encounter difficulty raising liquid
funds to meet its commitments as they fall due. In meeting its
liquidity requirements, the Company closely monitors its forecasted
cash requirements with expected cash drawdown.
The following are
the contractual maturities of the undiscounted cash flows of
financial liabilities as at February 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Third
parties
|
|
|
|
|
|
|
Accounts
payable
|
1,769,675
|
-
|
-
|
-
|
-
|
1,769,675
|
Accrued
liabilities
|
875,590
|
-
|
-
|
-
|
-
|
875,590
|
Related
parties
|
|
|
|
|
|
|
Employee
costs payable
|
214,874
|
-
|
-
|
-
|
-
|
214,874
|
Convertible
debentures (Note 5)
|
1,073,649
|
12,603
|
12,466
|
12,329
|
525,479
|
1,636,526
|
|
3,933,788
|
12,603
|
12,466
|
12,329
|
525,479
|
4,496,665
|
13.
Segmented information
The Company's
operations comprise a single reportable segment engaged in the
research, development and manufacture of novel and generic
controlled-release and targeted-release oral solid dosage drugs. As
the operations comprise a single reportable segment, amounts
disclosed in the financial statements for revenue, loss for the
period, depreciation and total assets also represent segmented
amounts. In addition, all of the Company's long-lived assets are in
Canada. The Company’s license and commercialization agreement
with Par accounts for substantially all of the revenue of the
Company.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three
months ended February 28, 2019 and 2018
(Stated in
U.S. dollars)
13.
Segmented information (continued)
|
For the
three months ended
|
|
|
|
|
|
|
|
$
|
$
|
Revenue
|
|
|
Canada
|
-
|
-
|
United
States
|
343,536
|
334,518
|
|
343,536
|
334,518
|
|
February 28 2019
|
November 30, 2018
|
Total
Assests
|
|
|
Canada
|
7,552,520
|
11,474,224
|
|
|
|
Total
property and equipment
|
|
|
Canada
|
2,633,618
|
2,755,993
|
14.
Subsequent events
In March 2019, the
Company received formal notice that the Nasdaq Hearings Panel had
determined to delist the Company’s shares from Nasdaq based
upon the Company’s non-compliance with the $1.00 bid price
requirement, as set forth in Nasdaq Listing Rule 5550(a)(2). The
suspension of trading on Nasdaq took effect at the open of business
on March 21, 2019.
Effective March 21,
2019 the Company's shares started trading on the OTCQB Venture
Market.
In March 2019,
1,687,000 stock options were granted to management and other
employees and 200,000 stock options were granted to non-management
members of the Board of Directors.
On April 4, 2019, a
tentative approval from TSX was received for a proposed refinancing
of the 2013 Debenture subject to certain conditions being met. As a
result of the proposed refinancing, the principal amount owing
under the 2013 Debenture will be refinanced by a new debenture (the
“New Debenture”). If issued, the New Debenture will
have a principal amount of $1,050,000, and will mature on November
1, 2019, bear interest at a rate of 12% per annum and be
convertible into 1,779,661 common shares of the Company at a
conversion price of $0.59 per common share. Dr. Isa Odidi and Dr.
Amina Odidi, who are shareholders, directors, and executive
officers of the Company, will be the holders of the New
Debenture.
On April 12, 2019,
Mallinckrodt and the Company mutually agreed to terminate their
Commercial Supply Agreement (the “Mallinckrodt
agreement”) effective no later than August 31, 2019. Under
the terms of the mutual agreement, Mallinckrodt has been released
from certain obligations under the agreement as of April 12, 2019.
The Company is in discussions with other parties who are interested
in marketing and distributing the Company’s products which
have been licensed under the Mallinckrodt agreement.
FORWARD-LOOKING
STATEMENTS
Certain statements
in this document constitute “forward-looking
statements” within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and/or
“forward-looking information” under the Securities Act
(Ontario). These statements include, without limitation, statements
expressed or implied regarding our expectations, plans, goals and
milestones, status of developments or expenditures relating to our
business, plans to fund our current activities, and statements
concerning our partnering activities, health regulatory
submissions, strategy, future operations, future financial
position, future sales, revenues and profitability, projected costs
and market penetration and risks or uncertainties arising
from the delisting of our shares from Nasdaq and our ability
to comply with OTCQB and TSX requirements. In some cases, you can
identify forward-looking statements by terminology such as
“appear”, “unlikely”, “target”,
“may”, “will”, “should”,
“expects”, “plans”, “plans to”,
“anticipates”, “believes”,
“estimates”, “predicts”,
“confident”, “prospects”,
“potential”, “continue”,
“intends”, "look forward", “could”,
“would”, “projected”, “set to”,
“goals”, “seeking” or the negative of such
terms or other comparable terminology. We made a number of
assumptions in the preparation of our forward-looking statements.
You should not place undue reliance on our forward-looking
statements, which are subject to a multitude of known and unknown
risks and uncertainties that could cause actual results, future
circumstances or events to differ materially from those stated in
or implied by the forward-looking statements.
Risks,
uncertainties and other factors that could affect our actual
results include, but are not limited to, the effects of general
economic conditions, securing and maintaining corporate alliances,
our estimates regarding our capital requirements and the effect of
capital market conditions and other factors, including the current
status of our product development programs, capital availability,
the estimated proceeds (and the expected use of any proceeds) we
may receive from any offering of our securities, the potential
dilutive effects of any future financing, potential liability from
and costs of defending pending or future litigation, our programs
regarding research, development and commercialization of our
product candidates, the timing of such programs, the timing, costs
and uncertainties regarding obtaining regulatory approvals to
market our product candidates and the difficulty in predicting the
timing and results of any product launches, the timing and amount
of profit-share payments from our commercial partners, and the
timing and amount of any available investment tax credits. Other
factors that could cause actual results to differ materially
include but are not limited to:
●
the actual or
perceived benefits to users of our drug delivery technologies,
products and product candidates as compared to others;
●
our ability to
establish and maintain valid and enforceable intellectual property
rights in our drug delivery technologies, products and product
candidates;
●
the scope of
protection provided by intellectual property rights for our drug
delivery technologies, products and product
candidates;
●
recent and future
legal developments in the United States and elsewhere that could
make it more difficult and costly for us to obtain regulatory
approvals for our product candidates and negatively affect the
prices we may charge;
●
increased public
awareness and government scrutiny of the problems associated with
the potential for abuse of opioid based medications;
●
pursuing growth
through international operations could strain our
resources;
●
our limited
manufacturing, sales, marketing and distribution capability and our
reliance on third parties for such;
●
the actual size of
the potential markets for any of our products and product
candidates compared to our market estimates;
●
our selection and
licensing of products and product candidates;
●
our ability to
attract distributors and/or commercial partners with the ability to
fund patent litigation and with acceptable product development,
regulatory and commercialization expertise and the benefits to be
derived from such collaborative efforts;
●
sources of revenues
and anticipated revenues, including contributions from distributors
and commercial partners, product sales, license agreements and
other collaborative efforts for the development and
commercialization of product candidates;
●
our ability to
create an effective direct sales and marketing infrastructure for
products we elect to market and sell directly;
●
the rate and degree
of market acceptance of our products;
●
delays in product
approvals that may be caused by changing regulatory
requirements;
●
the difficulty in
predicting the timing of regulatory approval and launch of
competitive products;
●
the difficulty in
predicting the impact of competitive products on sales volume,
pricing, rebates and other allowances;
●
the number of
competitive product entries, and the nature and extent of any
aggressive pricing and rebate activities that may
follow;
●
the inability to
forecast wholesaler demand and/or wholesaler buying
patterns;
●
seasonal
fluctuations in the number of prescriptions written for our generic
Focalin XR® capsules which may produce substantial
fluctuations in revenue;
●
the timing and
amount of insurance reimbursement regarding our
products;
●
changes in laws and
regulations affecting the conditions required by the United States
Food and Drug Administration (“FDA”) for approval,
testing and labeling of drugs including abuse or overdose deterrent
properties, and changes affecting how opioids are regulated and
prescribed by physicians;
●
changes in laws and
regulations, including Medicare and Medicaid, affecting among other
things, pricing and reimbursement of pharmaceutical
products;
●
the effect of
recent changes in U.S. federal income tax laws, including but not
limited to, limitations on the deductibility of business interest,
limitations on the use of net operating losses and application of
the base erosion minimum tax, on our U.S. corporate income tax
burden;
●
the success and
pricing of other competing therapies that may become
available;
●
our ability to
retain and hire qualified employees;
●
the availability
and pricing of third-party sourced products and
materials;
●
challenges related
to the development, commercialization, technology transfer,
scale-up, and/or process validation of manufacturing processes for
our products or product candidates;
●
the manufacturing
capacity of third-party manufacturers that we may use for our
products;
●
potential product
liability risks;
●
the recoverability
of the cost of any pre-launch inventory should a planned product
launch encounter a denial or delay of approval by regulatory
bodies, a delay in commercialization, or other potential
issues;
●
the successful
compliance with FDA, Health Canada and other governmental
regulations applicable to us and our third party
manufacturers’ facilities, products and/or
businesses;
●
our reliance on
commercial partners, and any future commercial partners, to market
and commercialize our products and, if approved, our product
candidates;
●
difficulties,
delays, or changes in the FDA approval process or test criteria for
Abbreviated New Drug Applications (“ANDAs”) and New
Drug Applications (“NDAs”);
●
challenges in
securing final FDA approval for our product candidates, including
our oxycodone hydrochloride extended release tablets
(“Oxycodone ER”) product candidate in particular, if a
patent infringement suit is filed against us with respect to any
particular product candidates (such as in the case of Oxycodone
ER), which could delay the FDA’s final approval of such
product candidates;
●
healthcare reform
measures that could hinder or prevent the commercial success of our
products and product candidates;
●
the risk that the
FDA may not approve requested product labeling for our product
candidate(s) having abuse-deterrent properties and targeting common
forms of abuse (oral, intra-nasal and intravenous);
●
risks associated
with cyber-security and the potential for vulnerability of our
digital information or the digital information of a current and/or
future drug development or commercialization partner of
ours; and
●
risks arising from
the ability and willingness of our third-party commercialization
partners to provide documentation that may be required to support
information on revenues earned by us from those commercialization
partners.
Additional risks
and uncertainties relating to us and our business can be found in
our reports, public disclosure documents and other filings with the
securities commissions and other regulatory bodies in Canada and
the U.S. which are available on
www.sedar.com
and
www.sec.gov
. The forward-looking
statements reflect our current views with respect to future events,
and are based on what we believe are reasonable assumptions as of
the date of this document. We disclaim any intention and have no
obligation or responsibility, except as required by law, to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
This discussion
should not be construed to imply that the results discussed herein
will necessarily continue into the future, or that any conclusion
reached herein will necessarily be indicative of our actual
operating results.
CORPORATE
DEVELOPMENTS
●
On April 12, 2019, we and
Mallinckrodt LLC ("Mallinckrodt") mutually agreed to terminate our
license and commercial supply agreement, effective no later than
August 31, 2019. Under the terms of our mutual agreement,
Mallinckrodt has been released from certain obligations under the
license and commercial supply agreement as of April 12, 2019. The
Company is in discussions with other parties who are interested in
marketing and distributing our products which have been licensed
under the agreement.
●
In March 2019, we
announced that the FDA acknowledged receipt of our resubmission of
the Oxycodone ER NDA filed on February 28, 2019. The FDA informed
us that it considers the resubmission a complete response to the
September 22, 2017 action letter it issued in respect of the NDA.
The FDA also assigned a Prescription Drug User Fee Act
(“PDUFA”) goal date of August 28, 2019.
●
As more fully
described below (under “NASDAQ DELISTING AND OTCQB
QUOTATION”), in March 2019, the Nasdaq Hearings Panel (the
“Nasdaq Panel”) determined to delist our shares from
Nasdaq based upon our non-compliance with the $1.00 minimum bid
price requirement, as set forth in Nasdaq Listing Rule 5550(a)(2).
The suspension of trading on Nasdaq took effect at the open of
business on March 21, 2019. Our shares began trading on the OTCQB,
which is operated by OTC Markets Group Inc., commencing on March
21, 2019.
●
On February 21, 2019, we and our CEO, Dr. Isa
Odidi (“Defendants”), were served with a Statement of
Claim filed in the Superior Court of Justice of Ontario
(“Court”) for a proposed class action under the Ontario
Class Proceedings Act (“Action”). The Action was
brought by Victor Romita, the proposed representative plaintiff
(“Plaintiff”), on behalf of a class of Canadian persons
(“Class”) who traded shares of the Company during the
period from February 29, 2016 to July 26, 2017
(“Period”). The Statement of Claim, under the
caption
Victor Romita v.
Intellipharmaceutics International Inc. and Isa
Odidi
, asserts that the
Defendants knowingly or negligently made certain public statements
during the Period that contained or omitted material facts
concerning Oxycodone ER abuse-deterrent oxycodone hydrochloride
extended release tablets. The Plaintiff alleges that he and the
Class suffered loss and damages as a result of their trading in the
Company’s shares during the Period. The Plaintiff seeks,
among other remedies, unspecified damages, legal fees and court and
other costs as the Court may permit. On February 26, 2019, the
Plaintiff delivered a Notice of Motion seeking the required
approval from the Court, in accordance with procedure under the
Ontario Securities Act, to allow the statutory claims under the
Ontario Securities Act to proceed with respect to the claims based
upon the acquisition or disposition of the Company’s shares
on the TSX during the Period. No date has been set for the hearing
of the Notice of Motion. No date has been set for the hearing of
the certification application. The Defendants intend to vigorously
defend the action and have filed a Notice of Intent to
Defend.
●
In February 2019,
we received tentative approval from the FDA for our ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. This product is a generic equivalent of the branded
product Pristiq® sold in the U.S. by Wyeth Pharmaceuticals,
LLC.
●
In January 2019, we
announced that we had commenced a research and development
(“R&D”) program of pharmaceutical cannabidiol
(“CBD”) based products. As part of this R&D
program, we filed provisional patent applications with the United
States Patent and Trademark Office pertaining to the delivery and
application of cannabinoid-based therapeutics, began talks with
potential commercialization partners in the cannabidiol industry,
and identified a potential supplier of CBD. We hold a Health Canada
Drug Establishment License (or DEL) and a dealer's license under
the Narcotics Control Regulations (“NCR”). Under the
NCR license, we are currently authorized to possess, produce, sell
and deliver drug products containing various controlled substances,
including CBD, in Canada.
●
On April 4, 2019, a
tentative approval from TSX was received for a proposed refinancing
of the 2013 Debenture (as defined below), subject to certain
conditions being met. As a result of the proposed refinancing, the
principal amount owing under the 2013 Debenture will be refinanced
by a new debenture (the “New Debenture”). If issued,
the New Debenture will have a principal amount of $1,050,000, and
mature on November 1, 2019, bear interest at a rate of 12% per
annum and be convertible into 1,779,661 common shares of the
Company at a conversion price of $0.59 per common share. Dr. Isa
Odidi and Dr. Amina Odidi, who are shareholders, directors, and
executive officers of the Company, will be the holders of the New
Debenture.
There
can be no assurance that we will enter into a new license and
commercial supply agreement for the marketing and distribution of
products which have been licensed under the Mallinckrodt agreement,
that our products will be successfully commercialized or produce
significant revenues for us. Also, there can be no assurance that
we will not be required to conduct further studies for our
Oxycodone ER product candidate, that the FDA will approve any of
our requested abuse-deterrent label claims or that the FDA will
meet its deadline for review and ultimately approve the NDA for the
sale of our Oxycodone ER product candidate in the U.S. market, that
we will be successful in submitting any additional ANDAs or NDAs
with the FDA or Abbreviated New Drug Submissions
(“ANDSs”) with Health Canada, that the FDA or Health
Canada will approve any of our current or future product candidates
for sale in the U.S. market and Canadian market, that any of our
products or product candidates will receive regulatory approval for
sale in other jurisdictions, that our desvenlafaxine
extended-release product candidate will receive final FDA approval,
or that any of our products will ever be successfully
commercialized and produce significant revenue for us. Moreover,
there can be no assurance that any of our provisional patent
applications will successfully mature into patents, or that any
cannabidiol-based product candidates we develop will ever be
successfully commercialized or produce significant revenue for
us.
NASDAQ
DELISTING AND OTCQB QUOTATION
In January 2019, we
announced that we had received notice from the Nasdaq Panel
extending the continued listing of our common shares until March 7,
2019, subject to certain conditions, while we worked to regain
compliance with Nasdaq’s requirements. In March 2019, we
received formal notice that the Nasdaq Panel had determined to
delist our shares from Nasdaq based upon our non-compliance with
the $1.00 bid price requirement, as set forth in Nasdaq Listing
Rule 5550(a)(2). The suspension of trading on Nasdaq took effect at
the open of business on March 21, 2019. Our shares began trading on
the OTCQB under the symbol “IPCIF”, commencing on
Thursday, March 21, 2019. Our shares also are listed on the TSX
under the symbol “IPCI” and our non-compliance with
Nasdaq's requirements did not impact our listing or trading status
on that exchange.
BUSINESS
OVERVIEW
On October 22,
2009, Intellipharmaceutics Ltd. and Vasogen Inc. completed a
court-approved plan of arrangement and merger (the “IPC
Arrangement Agreement”), resulting in the formation of the
Company, which is incorporated under the laws of Canada and the
common shares of which are currently traded on the TSX and
OTCQB.
We are a
pharmaceutical company specializing in the research, development
and manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. Our patented
Hypermatrix™ technology is a multidimensional
controlled-release drug delivery platform that can be applied to
the efficient development of a wide range of existing and new
pharmaceuticals. Based on this technology platform, we have
developed several drug delivery systems and a pipeline of products
(some of which have received FDA approval) and product candidates
in various stages of development, including ANDAs filed with the
FDA (and one ANDS filed with Health Canada) and one NDA filing, in
therapeutic areas that include neurology, cardiovascular,
gastrointestinal tract (“GIT”), diabetes and
pain.
In November 2005,
we entered into a license and commercialization agreement with Par
Pharmaceutical, Inc. (“Par”) (as amended on August 12,
2011 and September 24, 2013, the “Par agreement”),
pursuant to which we granted Par an exclusive, royalty-free license
to make and distribute in the U.S. all strengths of our generic
Focalin XR® (dexmethylphenidate hydrochloride
extended-release) capsules for a period of 10 years from the date
of commercial launch (which was November 19, 2013). Under the Par
agreement, we made a filing with the FDA for approval to market
generic Focalin XR® capsules in various strengths in the U.S.
(the “Company ANDA”), and are the owner of that Company
ANDA, as approved in part by the FDA. We retain the right to make
and distribute all strengths of the generic product outside of the
U.S. Calendar quarterly profit-sharing payments for its U.S. sales
under the Company ANDA are payable by Par to us as calculated
pursuant to the Par agreement. Within the purview of the Par
agreement, Par also applied for and owns an ANDA pertaining to all
marketed strengths of generic Focalin XR® (the “Par
ANDA”), and is now approved by the FDA, to market generic
Focalin XR® capsules in all marketed strengths in the U.S. As
with the Company ANDA, calendar quarterly profit-sharing payments
are payable by Par to us for its U.S. sales of generic Focalin
XR® under the Par ANDA as calculated pursuant to the Par
agreement.
We received final
approval from the FDA in November 2013 under the Company ANDA to
launch the 15 and 30 mg strengths of our generic Focalin XR®
capsules. Commercial sales of these strengths were launched
immediately by our commercialization partner in the U.S., Par. In
January 2017, Par launched the 25 and 35 mg strengths of its
generic Focalin XR® capsules in the U.S., and in May 2017, Par
launched the 10 and 20 mg strengths, complementing the 15 and 30 mg
strengths of our generic Focalin XR® marketed by Par. The FDA
granted final approval under the Par ANDA for its generic Focalin
XR® capsules in the 5, 10, 15, 20, 25, 30, 35 and 40 mg
strengths, and subsequently Par launched the remaining 5 and 40 mg
strengths. Under the Par agreement, we receive quarterly profit
share payments on Par’s U.S. sales of generic Focalin
XR®. We currently expect revenues from sales of the generic
Focalin XR® capsules to continue to be impacted by ongoing
competitive pressures in the generic market. There can be no
assurance whether revenues from this product will improve going
forward or that any recently launched strengths will be
successfully commercialized. We depend significantly on the actions
of our marketing partner Par in the prosecution, regulatory
approval and commercialization of our generic Focalin XR®
capsules and on its timely payment to us of the contracted calendar
quarterly payments as they come due.
In February 2019,
we received tentative approval from the FDA for our ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. This product is a generic equivalent of the branded
product Pristiq
®
sold
in the U.S. by Wyeth Pharmaceuticals, LLC. There can be no
assurance that our desvenlafaxine extended-release tablets in the
50 and 100 mg strengths will receive final FDA approval or, if
approved, that they will be successfully commercialized and produce
significant revenue for us. We previously announced that we had
entered into a license and commercial supply agreement with
Mallinckrodt, which granted Mallinckrodt, subject to its terms, an
exclusive license to market, sell and distribute in the U.S. the
Company's desvenlafaxine extended-release tablets (generic
Pristiq®). Among other things, the agreement provides for the
Company to have a profit sharing arrangement with respect to the
licensed product. We agreed to manufacture and supply the licensed
product exclusively for Mallinckrodt on a cost-plus basis, and
Mallinckrodt agreed that we will be its sole supplier of the
licensed product marketed in the U.S. On April 12, 2019, we and
Mallinckrodt mutually agreed to terminate the Mallinckrodt
agreement (as defined below) effective no later than August 31,
2019. Under the terms of our mutual agreement, Mallinckrodt has
been released from certain obligations under the license and
commercial supply agreement as of April 12, 2019. We are in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
In November 2018,
we received final approval from the FDA for our ANDA for
venlafaxine hydrochloride extended-release capsules in the 37.5, 75
and 150 mg strengths. The approved product is a generic equivalent
of the branded product Effexor® XR sold in the U.S. by Wyeth
Pharmaceuticals, LLC. We are actively exploring the best approach
to maximize our commercial returns from this approval. There can be
no assurance that our generic Effexor XR® for the 37.5, 75 and
150 mg strengths will be successfully commercialized and produce
significant revenue for us.
In February 2017,
we received final approval from the FDA for our ANDA for metformin
hydrochloride extended release tablets in the 500 and 750 mg
strengths, a generic equivalent for the corresponding strengths of
the branded product Glucophage® XR sold in the U.S. by
Bristol-Myers Squibb. The Company is aware that several other
generic versions of this product are currently available that serve
to limit the overall market opportunity for this product. We have
been continuing to evaluate options to realize commercial returns
on this product, particularly in international markets. In November
2018, we announced that we entered into two exclusive licensing and
distribution agreements with pharmaceutical distributors in Vietnam
and the Philippines pursuant to which the distributors were
granted the exclusive right, subject to regulatory approval, to
import and market our generic Glucophage® XR in Vietnam and
the Philippines, respectively. There can be no assurance as to when
and if such product will receive regulatory approval for the sale
in Vietnam or the Philippines. Moreover, there can be no assurance
that our metformin hydrochloride extended release tablets will be
successfully commercialized and produce significant revenues for
us.
In February 2016,
we received final approval from the FDA of our ANDA for generic
Keppra XR® (levetiracetam extended-release) tablets for the
500 and 750 mg strengths. Our generic Keppra XR® is a generic
equivalent for the corresponding strengths of the branded product
Keppra XR® sold in the U.S. by UCB, Inc., and is indicated for
use in the treatment of partial onset seizures associated with
epilepsy. We are aware that several other generic versions of this
product are currently available that serve to limit the overall
market opportunity. We have been actively exploring the best
approach to maximize our commercial returns from this approval and
have been looking at several international markets where, despite
lower volumes, product margins are typically higher than in the
U.S. In November 2018, we announced that we entered into two
exclusive licensing and distribution agreements with pharmaceutical
distributors in Vietnam and the Philippines pursuant to which the
distributors were granted the exclusive right, subject to
regulatory approval, to import and market our generic Keppra
XR® in Vietnam and the Philippines, respectively. There can be
no assurance as to when and if such product will receive regulatory
approval for the sale in Vietnam or the Philippines. Moreover,
there can be no assurance that our generic Keppra XR® for the
500 and 750 mg strengths will be successfully
commercialized and produce significant revenues for
us.
In May 2017, we
received final approval from the FDA for our ANDA for quetiapine
fumarate extended-release tablets in the 50, 150, 200, 300 and 400
mg strengths. Our approved product is a generic equivalent for the
corresponding strengths of the branded product Seroquel XR®
sold in the U.S. by AstraZeneca Pharmaceuticals LP
(“AstraZeneca”). Pursuant to a settlement agreement
between us and AstraZeneca dated July 30, 2012, we were permitted
to launch our generic versions of the 50, 150, 200, 300 and 400 mg
strengths of generic Seroquel XR®, on November 1, 2016,
subject to FDA final approval of our ANDA for those strengths. The
Company manufactured and shipped commercial quantities of all
strengths of generic Seroquel XR® to our marketing and
distribution partner Mallinckrodt, and Mallinckrodt launched all
strengths in June 2017.
In October 2016, we
announced a license and commercial supply agreement with
Mallinckrodt, granting Mallinckrodt an exclusive license to market,
sell and distribute in the U.S. the following extended release drug
product candidates (the "licensed products") which have either been
launched (generic Seroquel XR) or for which we have ANDAs filed
with the FDA (the “Mallinckrodt
agreement”):
■
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®) –
Approved and launched
■
Desvenlafaxine
extended-release tablets (generic Pristiq®) – ANDA Under
FDA Review (tentatively approved)
■
Lamotrigine
extended-release tablets (generic Lamictal® XR™) –
ANDA under FDA Review
Under the terms of
the agreement with Mallinckrodt, we received a non-refundable
upfront payment of $3 million in October 2016. In addition, the
agreement also provides for a profit sharing arrangement with
respect to these licensed products (which includes up to $11
million in cost recovery payments that are payable on future sales
of licensed product). We agreed to manufacture and supply the
licensed products exclusively for Mallinckrodt on a cost plus
basis. The Mallinckrodt agreement contains customary terms and
conditions for an agreement of this kind and was subject to early
termination in the event we did not obtain FDA approvals of the
Mallinckrodt licensed products by specified dates, or pursuant to
any one of several termination rights of each party. On April
12, 2019, we and Mallinckrodt mutually agreed to terminate the
Mallinckrodt agreement, effective no later than August 31, 2019.
Under the terms of our mutual agreement, Mallinckrodt has been
released from certain obligations under the license and commercial
supply agreement as of April 12, 2019. The Company is in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
Our goal is to
leverage our proprietary technologies and know-how in order to
build a diversified portfolio of revenue generating commercial
products. We intend to do this by advancing our products from the
formulation stage through product development, regulatory approval
and manufacturing. We believe that full integration of development
and manufacturing will help maximize the value of our drug delivery
technologies, products and product candidates. We also believe that
out-licensing sales and marketing to established organizations,
when it makes economic sense, will improve our return from our
products while allowing us to focus on our core competencies. We
expect our expenditures for the purchase of production, laboratory
and computer equipment and the expansion of manufacturing and
warehousing capability to be higher as we prepare for the
commercialization of ANDAs, one NDA and one ANDS that are pending
FDA and Health Canada approval, respectively.
STRATEGY
Our
Hypermatrix™ technologies are central to the development and
manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. The Hypermatrix™
technologies are a multidimensional controlled-release drug
delivery platform that we believe can be applied to the efficient
development of a wide range of existing and new pharmaceuticals. We
believe that the flexibility of these technologies allows us to
develop complex drug delivery solutions within an
industry-competitive timeframe. Based on this technology platform,
we have developed several drug delivery systems and a pipeline of
products (some of which have received FDA approval) and product
candidates in various stages of development, including ANDAs filed
with the FDA (and one ANDS filed with Health Canada) and one NDA
filing, in therapeutic areas that include neurology,
cardiovascular, GIT, diabetes and pain. We expect that certain, but
not all, of the products in our pipeline may be developed from time
to time for third parties pursuant to drug development agreements
with those third parties, under which our commercialization partner
may pay certain of the expenses of development, make certain
milestone payments to us and receive a share of revenues or profits
if the drug is developed successfully to completion, the control of
which would generally be in the discretion of our drug development
partner.
The principal focus
of our development activities previously targeted
difficult-to-develop controlled-release generic drugs which follow
an ANDA regulatory path. Our current development effort is
increasingly directed towards improved difficult-to-develop
controlled-release drugs which follow an NDA 505(b)(2) regulatory
pathway. We have increased our R&D emphasis towards specialty
new product development, facilitated by the 505(b)(2) regulatory
pathway, by advancing the product development program for both
Oxycodone ER and Regabatin
TM
. We have also
identified several additional 505(b)(2) product candidates for
development in various indication areas including cardiovascular,
dermatology, pulmonary disease and oncology. The technology that is
central to our abuse deterrent formulation of our Oxycodone ER is
the nPODDDS™, or novel Point of Divergence Drug Delivery
System. nPODDDS™ is designed to provide for certain unique
drug delivery features in a product. These include the release of
the active substance to show a divergence in a dissolution and/or
bioavailability profile. The divergence represents a point or a
segment in a release timeline where the release rate, represented
by the slope of the curve, changes from an initial rate or set of
rates to another rate or set of rates, the former representing the
usually higher rate of release shortly after ingesting a dose of
the drug, and the latter representing the rate of release over a
later and longer period of time, being more in the nature of a
controlled-release or sustained action. It is applicable for the
delivery of opioid analgesics in which it is desired to discourage
common methods of tampering associated with misuse and abuse of a
drug, and also dose dumping in the presence of alcohol. It can
potentially retard tampering without interfering with the
bioavailability of the product.
In addition, our
PODRAS™, or Paradoxical OverDose Resistance Activating
System, delivery technology was initially introduced to enhance our
Oxycodone ER (abuse deterrent oxycodone hydrochloride extended
release tablets) product candidate. The PODRAS
TM
delivery technology
platform was designed to prevent overdose when more pills than
prescribed are swallowed intact. Preclinical studies of prototypes
of oxycodone with PODRAS technology suggest that, unlike other
third-party abuse-deterrent oxycodone products in the marketplace,
if more tablets than prescribed are deliberately or inadvertently
swallowed, the amount of drug active ingredient (“drug
active”) released over 24 hours may be substantially less
than expected. However, if the prescribed number of pills is
swallowed, the drug release should be as expected. Certain aspects
of our PODRAS™ technology are covered by U.S. Patent Nos.
9,522,119, 9,700,515, 9,700,516 and 9,801,939 and Canadian Patent
No. 2,910,865 issued by the U.S. Patent and Trademark Office and
the Canadian Intellectual Property Office in respect of
“Compositions and Methods for Reducing Overdose” in
December 2016, July 2017 and October 2017, respectively. The
issuance of these patents provides us with the opportunity to
accelerate our PODRAS™ development plan by pursuing proof of
concept studies in humans. We intend to incorporate this technology
in future product candidates, including Oxycodone ER and other
similar pain products, as well as pursuing out-licensing
opportunities. The Company is currently working on the development
of an Oxycodone immediate-release (IR) product incorporating this
technology.
The NDA 505(b)(2)
pathway (which relies in part upon the FDA’s findings for a
previously approved drug) both accelerates development timelines
and reduces costs in comparison to NDAs for new chemical entities.
An advantage of our strategy for development of NDA 505(b)(2) drugs
is that our product candidates can, if approved for sale by the
FDA, potentially enjoy an exclusivity period which may provide for
greater commercial opportunity relative to the generic ANDA
route.
The market we
operate in is created by the expiration of drug product patents,
challengeable patents and drug product exclusivity periods. There
are three ways that we employ our controlled-release technologies,
which we believe represent substantial opportunities for us to
commercialize on our own or develop products or out-license our
technologies and products:
●
For branded
immediate-release (multiple-times-per-day) drugs, we can formulate
improved replacement products, typically by developing new,
potentially patentable, controlled-release once-a-day drugs. Among
other out-licensing opportunities, these drugs can be licensed to
and sold by the pharmaceutical company that made the original
immediate-release product. These can potentially protect against
revenue erosion in the brand by providing a clinically attractive
patented product that competes favorably with the generic
immediate-release competition that arises on expiry of the original
patent(s). The regulatory pathway for this approach requires NDAs
via a 505(b)(2) application for the U.S. or corresponding pathways
for other jurisdictions where applicable.
●
Some of our
technologies are also focused on the development of abuse-deterrent
and overdose preventive pain medications. The growing abuse and
diversion of prescription “painkillers”, specifically
opioid analgesics, is well documented and is a major health and
social concern. We believe that our technologies and know-how are
aptly suited to developing abuse-deterrent pain medications. The
regulatory pathway for this approach requires NDAs via a 505(b)(2)
application for the U.S. or corresponding pathways for other
jurisdictions where applicable.
●
For existing
controlled-release (once-a-day) products whose active
pharmaceutical ingredients (APIs) are covered by drug molecule
patents about to expire or already expired, or whose formulations
are covered by patents about to expire, already expired or which we
believe we do not infringe, we can seek to formulate generic
products which are bioequivalent to the branded products. Our
scientists have demonstrated a successful track record with such
products, having previously developed several drug products which
have been commercialized in the U.S. by their former
employer/clients. The regulatory pathway for this approach requires
ANDAs for the U.S. and ANDSs for Canada.
We intend to
collaborate in the development and/or marketing of one or more
products with partners, when we believe that such collaboration may
enhance the outcome of the project. We also plan to seek additional
collaborations as a means of developing additional products. We
believe that our business strategy enables us to reduce our risk by
(a) having a diverse product portfolio that includes both branded
and generic products in various therapeutic categories, and (b)
building collaborations and establishing licensing agreements with
companies with greater resources thereby allowing us to share costs
of development and to improve cash-flow. There can be no assurance
that we will be able to enter into additional collaborations or, if
we do, that such arrangements will be commercially viable or
beneficial.
OUR
DRUG DELIVERY TECHNOLOGIES
Hypermatrix
TM
Our scientists have
developed drug delivery technology systems, based on the
Hypermatrix™ platform, that facilitate controlled-release
delivery of a wide range of pharmaceuticals. These systems include
several core technologies, which enable us to flexibly respond to a
wide range of drug attributes and patient requirements, producing a
desired controlled-release effect. Our technologies have been
incorporated in drugs manufactured and sold by major pharmaceutical
companies.
This group of drug
delivery technology systems is based upon the drug active being
imbedded in, and an integral part of, a homogeneous (uniform), core
and/or coatings consisting of one or more polymers which affect the
release rates of drugs, other excipients (compounds other than the
drug active), such as for instance lubricants which control
handling properties of the matrix during fabrication, and the drug
active itself. The Hypermatrix™ technologies are the core of
our current marketing efforts and the technologies underlying our
existing development agreements.
nPODDDS
TM
In addition to
continuing efforts with Hypermatrix™ as a core technology,
our scientists continue to pursue novel research activities that
address unmet needs. Oxycodone ER (abuse deterrent oxycodone
hydrochloride extended release tablets) is an NDA candidate with a
unique long acting oral formulation of oxycodone intended to treat
moderate-to-severe pain. The formulation is intended to present a
significant barrier to tampering when subjected to various forms of
physical and chemical manipulation commonly used by abusers. It is
also designed to prevent dose dumping when inadvertently
co-administered with alcohol. The technology that supports our
abuse deterrent formulation of oxycodone is the nPODDDS™
Point of Divergence Drug Delivery System. The use of nPODDDS™
does not interfere with the bioavailability of oxycodone. We intend
to apply the nPODDDS™ technology platforms to other extended
release opioid drug candidates (e.g., oxymorphone, hydrocodone,
hydromorphone and morphine) utilizing the 505(b)(2) regulatory
pathway.
PODRAS
TM
Our Paradoxical
OverDose Resistance Activating System (PODRAS™) delivery
technology is designed to prevent overdose when more pills than
prescribed are swallowed intact. Preclinical studies of prototypes
of oxycodone with PODRAS™ technology suggest that, unlike
other third-party abuse-deterrent oxycodone products in the
marketplace, if more tablets than prescribed are deliberately or
inadvertently swallowed, the amount of drug active released over 24
hours may be substantially less than expected. However, if the
prescribed number of pills is swallowed, the drug release should be
as expected. We are currently working on an alternate Oxycodone ER
product candidate incorporating our PODRAS™ delivery
technology. In April 2015, the FDA published
Guidance for Industry: Abuse-Deterrent
Opioids — Evaluation and Labeling
, which cited the
need for more efficacious abuse-deterrence technology. In this
Guidance, the FDA stated, “opioid products are often
manipulated for purposes of abuse by different routes of
administration or to defeat extended-release properties, most
abuse-deterrent technologies developed to date are intended to make
manipulation more difficult or to make abuse of the manipulated
product less attractive or less rewarding. It should be noted that
these technologies have not yet proven successful at deterring the
most common form of abuse—swallowing a number of intact
capsules or tablets to achieve a feeling of euphoria.” The
FDA reviewed our request for Fast Track designation for our abuse
deterrent Oxycodone ER development program incorporating
PODRAS™, and in May 2015 notified us that the FDA had
concluded that we met the criteria for Fast Track designation. Fast
Track is a designation assigned by the FDA in response to an
applicant’s request which meets FDA criteria. The designation
mandates the FDA to facilitate the development and expedite the
review of drugs intended to treat serious or life-threatening
conditions and that demonstrate the potential to address unmet
medical needs.
In
December 2016, July 2017 and October 2017, U.S. Patent Nos.
9,522,119, 9,700,515, 9,700,516 and 9,801,939 and Canadian Patent
No. 2,910,865 were issued by the U.S. Patent and Trademark Office
and the Canadian Intellectual Property Office in respect of
“Compositions and Methods for Reducing Overdose”. The
issued patents cover aspects of the PODRAS™ delivery
technology. The issuance of these patents represents a significant
advance in our abuse deterrence technology platform. The
PODRAS™ platform has the potential to positively
differentiate our technology from others of which we are aware, and
may represent an important step toward addressing the FDA’s
concern over the ingestion of a number of intact pills or tablets.
In addition to its use with opioids, the PODRAS
TM
platform is
potentially applicable to a wide range of drug products, inclusive
of over-the-counter drugs, that are intentionally or inadvertently
abused and cause harm by overdose to those who ingest them. We
intend to apply the PODRAS™ technology platforms to other
extended release opioid drug candidates (e.g., oxymorphone,
hydrocodone, hydromorphone and morphine) utilizing the 505(b)(2)
regulatory pathway.
PRODUCTS
AND PRODUCT CANDIDATES
The table below
shows the present status of our ANDA, ANDS and NDA products and
product candidates that have been disclosed to the
public.
Generic
name
|
Brand
|
Indication
|
Stage
of Development
(1)`
|
Regulatory
Pathway
|
Market
Size (in millions)
(2)
|
Rights
(3)
|
Dexmethylphenidate hydrochloride extended-release
capsules
|
Focalin
XR®
|
Attention deficit
hyperactivity disorder
|
Received final
approval for 5, 10,15, 20, 25, 30, 35 and 40 mg strengths from
FDA
(4)
|
ANDA
|
$
854
|
Intellipharmaceutics
and Par (US)
Philippines rights
subject to licensing and distribution agreement
|
Levetiracetam extended-release tablets
|
Keppra XR®
|
Partial onset
seizures for epilepsy
|
Received final
approval for the 500 and 750 mg strengths from FDA
|
ANDA
|
$
127
|
Intellipharmaceutics
Philippines and
Vietnamese rights subject to licensing and distribution
agreements
|
Venlafaxine hydrochloride extended-release capsules
|
Effexor XR
®
|
Depression
|
Received final
approval for 37.5, 75 and 150 mg strengths from FDA
|
ANDA
|
$
781
|
Intellipharmaceutics
|
Pantoprazole sodium delayed- release tablets
|
Protonix
®
|
Conditions
associated with gastroesophageal reflux disease
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
$
369
|
Intellipharmaceutics
|
Metformin hydrochloride extended-release tablet
|
Glucophage® XR
|
Management of type
2 diabetes
|
Received final
approval for 500 and 750 mg strengths from FDA
|
ANDA
|
$
387
(500 and 750 mg
only)
|
Intellipharmaceutics
Philippines and
Vietnamese rights subject to licensing and distribution
agreements
|
Quetiapine fumarate extended-release tablets
|
Seroquel XR®
|
Schizophrenia,
bipolar disorder & major depressive disorder
|
Received final FDA
approval for all 5 strengths. ANDS under review by Health
Canada
|
ANDA
|
$
178
|
Intellipharmaceutics
and Mallinckrodt
(US)
(5)
Philippines,
Malaysian and Vietnamese rights subject to licensing and
distribution agreements
|
Lamotrigine extended-release tablets
|
Lamictal® XR™
|
Anti-convulsant for
epilepsy
|
ANDA application
for commercialization approval for 6 strengths under review by
FDA
|
ANDA
|
$
522
|
Intellipharmaceutics
and Mallinckrodt
(US)
(5)
|
Desvenlafaxine extended-release tablets
|
Pristiq®
|
Depression
|
Received tentative
approval for the 50 and 100 mg strengths from FDA
|
ANDA
|
$
278
|
Intellipharmaceutics
and Mallinckrodt (US)
(5)
|
Trazodone hydrochloride extended-release tablets
|
Oleptro™
|
Depression
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
N/A(6)
|
Intellipharmaceutics
|
Carvedilol phosphate extended- release capsules
|
Coreg CR®
|
Heart failure,
hypertension
|
Late-stage
development
|
ANDA
|
64
|
Intellipharmaceutics
|
Oxycodone hydrochloride controlled-release capsules
|
OxyContin®
|
Pain
|
NDA application
accepted February 2017 and under review by FDA
|
NDA
505(b)(2)
|
1,442
|
Intellipharmaceutics
Philippines rights
subject to licensing and distribution agreement
|
Pregabalin extended-release capsules
|
Lyrica®
|
Neuropathic
pain
|
IND application
submitted in August 2015
|
NDA
505(b)(2)
|
5,435
|
Intellipharmaceutics
|
Ranolazine extended-release tablets
|
Ranexa®
|
Chronic
angina
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
1,014
|
Intellipharmaceutics
|
Oxycodone hydrochloride
immediate release tablets
(IPCI006)
|
Roxicodone®
|
Pain
|
IND application
submitted in November 2018
|
NDA
505(b)(2)
|
623
|
Intellipharmaceutics
|
Notes
:
(1)
There can be no
assurance as to when, or if at all, the FDA or Health Canada will
approve any product candidate for sale in the U.S. or Canadian
markets.
(2)
Represents sales
for all strengths, unless otherwise noted, for the 12 months ended
February 2019 in the U.S., including sales of generics in TRx MBS
Dollars, which represents projected new and refilled prescriptions
representing a standardized dollar metric based on
manufacturer’s published catalog or list prices to
wholesalers, and does not represent actual transaction prices and
does not include prompt pay or other discounts, rebates or
reductions in price. Source: Symphony Health Solutions Corporation.
The information attributed to Symphony Health Solutions Corporation
herein is provided as is, and Symphony makes no representation
and/or warranty of any kind, including but not limited to, the
accuracy and/or completeness of such information.
(3)
For information
regarding the Par agreement
and the licensing and
distribution agreements with pharmaceutical distributors in
Malaysia, Vietnam and the Philippines, see the “Business
Overview” and “Other Potential Products and
Markets” sections. There can be no assurance as to when, or
if at all, any of our products or product candidates, as the case
may be, will receive regulatory approval for sale in the
Philippines, Malaysia or Vietnam. For unpartnered products, we are
exploring licensing agreement opportunities or other forms of
distribution. While we believe that licensing agreements are
possible, there can be no assurance that any can be
secured.
(4)
Includes a Company
ANDA final approval for our 15 and 30 mg strengths, and a Par ANDA
final approval for their 5, 10, 15, 20, 25, 30, 35 and 40 mg
strengths. Profit sharing payments to us under the Par agreement
are the same irrespective of the ANDA owner.
(5)
On April 12,
2019, we and Mallinckrodt mutually agreed to terminate our license
and commercial supply agreement effective no later than August 31,
2019. Under the terms of our mutual agreement, Mallinckrodt has
been released from certain obligations under the license and
commercial supply agreement as of April 12, 2019. We are in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement. For information regarding the Mallinckrodt
agreement, see the “Business Overview”
section.
(6)
Trazodone
Hydrochloride extended-release tablets are not currently being
marketed in the United States.
We typically select
products for development that we anticipate could achieve FDA or
Health Canada approval for commercial sales several years in the
future. However, the length of time necessary to bring a product to
the point where the product can be commercialized can vary
significantly and depends on, among other things, the availability
of funding, design and formulation challenges, safety or efficacy,
patent issues associated with the product, and FDA and Health
Canada review times.
Dexmethylphenidate
Hydrochloride – Generic
Focalin
XR
®
(a registered trademark of the
brand manufacturer)
Dexmethylphenidate
hydrochloride, a Schedule II restricted product (drugs with a high
potential for abuse) in the U.S., is indicated for the treatment of
attention deficit hyperactivity disorder. In November 2005, we
entered into the Par agreement pursuant to which we granted Par an
exclusive, royalty-free license to make and distribute in the U.S.
all of our FDA approved strengths of our generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules for a
period of 10 years from the date of commercial launch (which was
November 19, 2013). We retain the right to make and distribute all
strengths of the generic product outside of the U.S. Calendar
quarterly profit-sharing payments for its U.S. sales of all
strengths of generic Focalin XR® are payable by Par to us as
calculated pursuant to the Par agreement.
We
received final approval from the FDA in November 2013 under the
Company ANDA to launch the 15 and 30 mg strengths of our generic
Focalin XR
®
capsules.
Commercial sales of these strengths were launched immediately by
our commercialization partner in the U.S., Par. Our 5, 10, 20 and
40 mg strengths were also then tentatively FDA approved, subject to
the right of Teva Pharmaceuticals USA, Inc. to 180 days of generic
exclusivity from the date of first launch of such products. In
January 2017, Par launched the 25 and 35 mg strengths of its
generic Focalin XR
®
capsules in the
U.S., and in May 2017, Par launched the 10 and 20 mg strengths,
complementing the 15 and 30 mg strengths of our generic Focalin
XR
®
marketed by Par. In November 2017, Par launched the remaining 5 and
40 mg strengths providing us with the full line of generic Focalin
XR® strengths available in the U.S. market.
In November 2018,
we announced that we entered into an exclusive licensing and
distribution agreement with a pharmaceutical distributor in the
Philippines pursuant to which the distributor was granted the
exclusive right, subject to regulatory approval, to import and
market our generic Focalin XR® in the Philippines. Under the
terms of the agreement, the distributor will be required to
purchase a minimum yearly quantity of our generic Focalin
XR® and we will be the exclusive supplier of such
product. This multi-year agreement is subject to early
termination.
There can be no
assurance as to when and if such product will receive regulatory
approval for the sale in the Philippines or that, if so approved,
the product will be successfully commercialized there and produce
significant revenues for us.
Levetiracetam – Generic Keppra
XR®
(a registered
trademark of the brand manufacturer)
We received final
approval from the FDA in February 2016 for the 500 and 750 mg
strengths of our generic Keppra XR® (levetiracetam
extended-release) tablets. Keppra XR®, and the drug active
levetiracetam, are indicated for use in the treatment of partial
onset seizures associated with epilepsy. We are aware that several
other generic versions of this product are currently available and
serve to limit the overall market opportunity. We have been
actively exploring the best approach to maximize our commercial
returns from this approval and have been looking at several
international markets where, despite lower volumes, product margins
are typically higher than in the U.S.
In November 2018,
we announced that we entered into two exclusive licensing and
distribution agreements with pharmaceutical distributors in Vietnam
and the Philippines pursuant to which the distributors were granted
the exclusive right, subject to regulatory approval, to import and
market our generic Keppra XR® in Vietnam and the Philippines,
respectively. Under the terms of the agreements, the distributors
will be required to purchase a minimum yearly quantity of our
generic Keppra XR®. These multi-year agreements are each
subject to early termination.
There can be no
assurance that the Company's generic Keppra XR® for the 500
and 750 mg strengths will be successfully
commercialized. Further, there can be no assurance as to when
and if such product will receive regulatory approval for the sale
in Vietnam or the Philippines or that, if so approved, the product
will be successfully commercialized there and produce significant
revenues for us.
Venlafaxine hydrochloride – Effexor
XR®
(a registered
trademark of the brand manufacturer)
We received final
approval from the FDA in November 2018 for our ANDA for venlafaxine
hydrochloride extended-release capsules in the 37.5, 75 and 150 mg
strengths. The approved product is a generic equivalent of the
branded product Effexor® XR sold in the U.S. by Wyeth
Pharmaceuticals, LLC. Effexor® XR, and the drug active
venlafaxine hydrochloride, are indicated for the treatment of major
depressive disorder, or MDD. We are actively exploring the best
approach to maximize our commercial returns from this approval. We
are aware that several other generic versions of this product are
currently available and serve to limit the overall market
opportunity. There can be no assurance that the Company's
venlafaxine hydrochloride extended-release capsules for the 37.5
mg, 75 mg, and 150 mg will be successfully commercialized and
produce significant revenue for us.
Metformin hydrochloride – Generic
Glucophage® XR
(a
registered trademark of the brand manufacturer)
We received final
approval from the FDA in February 2017 for the 500 and 750 mg
strengths of our generic Glucophage® XR (metformin
hydrochloride extended release) tablets. Glucophage® XR, and
the drug active metformin, are indicated for use in the management
of type 2 diabetes treatment. The Company is aware that several
other generic versions of this product are currently available and
serve to limit the overall market opportunity, however, we are
continuing to evaluate options to realize commercial returns on
this product, particularly in international markets.
In November 2018,
we announced that we entered into two exclusive licensing and
distribution agreements with pharmaceutical distributors in Vietnam
and the Philippines pursuant to which the distributors were granted
the exclusive right, subject to regulatory approval, to import and
market our generic Glucophage® XR in Vietnam and the
Philippines, respectively. Under the terms of the agreements, the
distributors will be required to purchase a minimum yearly quantity
of our generic Glucophage® XR. These multi-year agreements are
each subject to early termination.
There can be no
assurance that our generic Glucophage® XR for the 500 and 750
mg strengths will be successfully commercialized. Further,
there can be no assurance as to when and if such product will
receive regulatory approval for the sale in Vietnam or the
Philippines or that, if so approved, the product will be
successfully commercialized there and produce significant revenues
for us.
Quetiapine fumarate extended-release tablets -
Generic Seroquel XR®
(a registered trademark of the brand
manufacturer)
In May 2017, we
received final approval from the FDA for our ANDA for quetiapine
fumarate extended-release tablets in the 50, 150, 200, 300 and 400
mg strengths. Our approved product is a generic equivalent for the
corresponding strengths of the branded product Seroquel XR®
sold in the U.S. by AstraZeneca. Pursuant to a settlement agreement
between us and AstraZeneca dated July 30, 2012, we were permitted
to launch our generic versions of the 50, 150, 200, 300 and 400 mg
strengths of generic Seroquel XR®, on November 1, 2016,
subject to FDA final approval of our ANDA for those strengths. Our
final FDA approval followed the expiry of 180-day exclusivity
periods granted to the first filers of generic equivalents to the
branded product, which were shared by Par and Accord Healthcare.
The Company manufactured and shipped commercial quantities of all
strengths of generic Seroquel XR® to our marketing and
distribution partner Mallinckrodt, and Mallinckrodt launched all
strengths in June 2017. On April 12, 2019, we and Mallinckrodt
mutually agreed to terminate the Mallinckrodt agreement effective
no later than August 31, 2019. Under the terms of our mutual
agreement, Mallinckrodt has been released from certain obligations
under the license and commercial supply agreement as of April 12,
2019. The Company is in discussions with other parties who are
interested in marketing and distributing our products which have
been licensed under the Mallinckrodt agreement.
In November 2018,
we announced that we entered into three exclusive licensing and
distribution agreements with pharmaceutical distributors in
Malaysia, Vietnam and the Philippines pursuant to which the
distributors were granted the exclusive right, subject to
regulatory approval, to import and market our generic Seroquel
XR® in Malaysia, Vietnam and the Philippines, respectively.
Under the terms of the agreements, the distributors will be
required to purchase a minimum yearly quantity of our generic
Seroquel XR®. The multi-year agreements are each subject to
early termination. There can be no assurance as to when and if
such product will receive regulatory approval for the sale in
Malaysia, Vietnam or the Philippines or that, if so approved, the
product will be successfully commercialized there and produce
significant revenues for us.
Desvenlafaxine succinate extended-release
tablets – Generic Pristiq®
(a registered
trademark of the brand manufacturer)
In February 2019,
we received tentative approval from the FDA for our ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. This product is a generic equivalent of the branded
product Pristiq
®
sold
in the U.S. by Wyeth Pharmaceuticals, LLC. There can be no
assurance that our desvenlafaxine extended-release tablets in the
50 and 100 mg strengths will receive final FDA approval or, if
approved, that they will be successfully commercialized and produce
significant revenue for us. We previously announced that we had
entered into the Mallinckrodt agreement, which granted
Mallinckrodt, subject to its terms, an exclusive license to market,
sell and distribute in the U.S. the Company's desvenlafaxine
extended-release tablets (generic Pristiq®). Among other
things, the agreement provides for the Company to have a profit
sharing arrangement with respect to the licensed product.
Intellipharmaceutics agreed to manufacture and supply the licensed
product exclusively for Mallinckrodt on a cost-plus basis, and
Mallinckrodt agreed that Intellipharmaceutics will be its sole
supplier of the licensed product marketed in the U.S. On April 12,
2019, we and Mallinckrodt mutually agreed to terminate the
Mallinckrodt agreement, effective no later than August 31, 2019.
Under the terms of our mutual agreement, Mallinckrodt has been
released from certain obligations under the license and commercial
supply agreement as of April 12, 2019. The Company is in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
Oxycodone
ER (Abuse Deterrent Oxycodone Hydrochloride Extended-Release
Tablets)
One of our
non-generic products under development is our Oxycodone ER (abuse
deterrent oxycodone hydrochloride extended release tablets) product
candidate, intended as an abuse and alcohol-deterrent
controlled-release oral formulation of oxycodone hydrochloride for
the relief of pain. Our Oxycodone ER is a new drug candidate, with
a unique long acting oral formulation of oxycodone intended to
treat moderate-to-severe pain when a continuous, around the clock
opioid analgesic is needed for an extended period of time. The
formulation is intended to present a significant barrier to
tampering when subjected to various forms of physical and chemical
manipulation commonly used by abusers. It is also designed to
prevent dose dumping when inadvertently co-administered with
alcohol. Dose dumping is the rapid release of an active ingredient
from a controlled-release drug into the blood stream that can
result in increased toxicity, side effects, and a loss of efficacy.
Dose dumping can result by consuming the drug through crushing,
taking with alcohol, extracting with other beverages, vaporizing or
injecting. In addition, when crushed or pulverized and hydrated,
the proposed extended release formulation is designed to coagulate
instantaneously and entrap the drug in a viscous hydrogel, which is
intended to prevent syringing, injecting and snorting. Our
Oxycodone ER formulation is difficult to abuse through the
application of heat or an open flame, making it difficult to inhale
the active ingredient from burning.
In March 2015, we
announced the results of three definitive open label, blinded,
randomized, cross-over, Phase I pharmacokinetic clinical trials in
which our Oxycodone ER was compared to the existing branded drug
OxyContin® (extended release oxycodone hydrochloride) under
single dose fasting, single dose steady-state fasting and single
dose fed conditions in healthy volunteers. We had reported that the
results from all three studies showed that Oxycodone ER met the
bioequivalence criteria (90% confidence interval of 80% to 125%)
for all matrices, i.e., on the measure of maximum plasma
concentration or Cmax, on the measure of area under the curve time
(AUC
t
)
and on the measure of area under the curve infinity
(AUC
inf
).
In May 2015, the
FDA provided us with notification regarding our IND submission for
Oxycodone ER indicating that we would not be required to conduct
Phase III studies if bioequivalence to OxyContin® was
demonstrated based on pivotal bioequivalence studies.
In January 2016, we
announced that pivotal bioequivalence trials of our Oxycodone ER,
dosed under fasted and fed conditions, had demonstrated
bioequivalence to OxyContin® extended release tablets as
manufactured and sold in the U.S. by Purdue Pharma L.P.
(“Purdue”). The study design was based on FDA
recommendations and compared the lowest and highest strengths of
exhibit batches of our Oxycodone ER to the same strengths of
OxyContin®. The results show that the ratios of the
pharmacokinetic metrics, Cmax, AUC
0-t
and
AUC
0-f
for Oxycodone ER vs OxyContin®, are within the interval of 80%
- 125% required by the FDA with a confidence level exceeding
90%.
In July 2016, we
announced the results of a food effect study conducted on our
behalf for Oxycodone ER. The study design was a randomized,
one-treatment two periods, two sequences, crossover, open label,
laboratory-blind bioavailability study for Oxycodone ER following a
single 80 mg oral dose to healthy adults under fasting and fed
conditions. The study showed that Oxycodone ER can be administered
with or without a meal (i.e., no food effect). Oxycodone ER met the
bioequivalence criteria (90% confidence interval of 80% to 125%)
for all matrices, involving maximum plasma concentration and area
under the curve (i.e., Cmax ratio of Oxycodone ER taken under
fasted conditions to fed conditions, and AUC metrics taken under
fasted conditions to fed conditions). We believe that Oxycodone ER
is well differentiated from currently marketed oral oxycodone
extended release products.
In November 2016,
we filed an NDA seeking authorization to market our Oxycodone ER in
the 10, 15, 20, 30, 40, 60 and 80 mg strengths, relying on the
505(b)(2) regulatory pathway which allowed us to reference data
from Purdue’s file for its OxyContin®. In February 2017,
the FDA accepted for filing our NDA, and set a PDUFA goal date of
September 25, 2017. Our submission is supported by pivotal
pharmacokinetic studies that demonstrated that Oxycodone ER is
bioequivalent to OxyContin®. The submission also includes
abuse-deterrent studies conducted to support abuse-deterrent label
claims related to abuse of the drug by various pathways, including
oral, intra-nasal and intravenous, having reference to the FDA's
"Abuse-Deterrent Opioids - Evaluation and Labeling" guidance
published in April 2015.
Our NDA was filed
under Paragraph IV of the Hatch-Waxman Act, as amended. We
certified to the FDA that we believed that our Oxycodone
ER
product
candidate would not infringe any of the OxyContin® patents
listed in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, commonly known as the Orange Book (the
“Orange Book”), or that such patents are invalid, and
so notified all holders of the subject patents of such
certification. On April 7, 2017, we received notice that Purdue,
Purdue Pharmaceuticals L.P., The P.F. Laboratories, Inc., or
collectively the Purdue parties, Rhodes Technologies, and
Grünenthal GmbH, or collectively the Purdue litigation
plaintiffs, had commenced patent infringement proceedings, or the
Purdue litigation, against us in the U.S. District Court for the
District of Delaware (docket number 17-392) in respect of our NDA
filing for Oxycodone ER, alleging that our proposed Oxycodone ER
infringes 6 out of the 16 patents associated with the branded
product OxyContin®, or the OxyContin® patents, listed in
the Orange Book. The complaint seeks injunctive relief as well as
attorneys' fees and costs and such other and further relief as the
Court may deem just and proper. An answer and counterclaim have
been filed.
Subsequent to the
above-noted filing of lawsuit, 4 further such patents were listed
and published in the Orange Book. We then similarly certified to
the FDA concerning such further patents. On March 16, 2018, we
received notice that the Purdue litigation plaintiffs had commenced
further such patent infringement proceedings adding the 4 further
patents. This lawsuit is also in the District of Delaware federal
court under docket number 18-404.
As a result of the
commencement of the first of these legal proceedings, the FDA is
stayed for 30 months from granting final approval to our Oxycodone
ER product candidate. That time period commenced on February 24,
2017, when the Purdue litigation plaintiffs received notice of our
certification concerning the patents, and will expire on August 24,
2019, unless the stay is earlier terminated by a final declaration
of the courts that the patents are invalid, or are not infringed,
or the matter is otherwise settled among the parties.
On or about June
26, 2018, the court issued an order to sever 6
“overlapping” patents from the second Purdue case, but
ordered litigation to proceed on the 4 new (2017-issued) patents.
An answer and counterclaim was filed on July 9, 2018. The existence
and publication of additional patents in the Orange Book, and
litigation arising therefrom, is an ordinary and to be expected
occurrence in the course of such litigation.
On July 6, 2018,
the court issued a so-called “Markman” claim
construction ruling on the first case and the October 22, 2018
trial date remained unchanged. We believe that we have
non-infringement and/or invalidity defenses to all of the asserted
claims of the subject patents in both of the cases and will
vigorously defend against these claims.
On July 24, 2018,
the parties to the case mutually agreed to and did have dismissed
without prejudice the infringement claims related to the
Grünenthal ‘060 patent. The Grünenthal ‘060
patent is one of the six patents included in the original
litigation case, however, the dismissal does not by itself result
in a termination of the 30-month litigation stay.
On October 4, 2018,
the parties mutually agreed to postpone the scheduled court date
pending a case status conference scheduled for December 17, 2018.
At that time, further trial scheduling and other administrative
matters were postponed pending the Company’s resubmission of
the Oxycodone ER NDA to the FDA, which was made on February 28,
2019. On January 17, 2019, the court issued a scheduling order in
which the remaining major portions are scheduled. The trial is
scheduled for June 2020.
In June 2017, we
announced that a joint meeting of the Anesthetic and Analgesic Drug
Products Advisory Committee and Drug Safety and Risk Management
Advisory Committee of the FDA (together, the “Advisory
Committees”) meeting was scheduled for July 26, 2017 to
review our NDA for Oxycodone ER. The submission requested that our
Oxycodone ER product candidate include product label claims to
support the inclusion of language regarding abuse-deterrent
properties for the intravenous route of
administration.
In July 2017, the
Company announced that the FDA Advisory Committees voted 22 to 1 in
finding that the Company’s NDA for Oxycodone ER should not be
approved at this time. The Advisory Committees also voted 19 to 4
that the Company had not demonstrated that Oxycodone ER has
properties that can be expected to deter abuse by the intravenous
route of administration, and 23 to 0 that there was not sufficient
data for Oxycodone ER to support inclusion of language regarding
abuse-deterrent properties in the product label for the intravenous
route of administration. The Advisory Committees expressed a desire
to review the additional safety and efficacy data for Oxycodone ER
that may be obtained from human abuse potential studies for the
oral and intranasal routes of administration.
In September 2017,
the Company received a Complete Response Letter (“CRL”)
from the FDA for the Oxycodone ER NDA. In its CRL, the FDA provided
certain recommendations and requests for information, including
that Intellipharmaceutics complete Category 2 and Category 3
studies to assess the abuse-deterrent properties of Oxycodone ER by
the oral and nasal routes of administration. The FDA also requested
additional information related to the inclusion of the blue dye in
the Oxycodone ER formulation, which is intended to deter abuse. The
FDA also requested that Intellipharmaceutics submit an alternate
proposed proprietary name for Oxycodone ER. The FDA determined that
it could not approve the application in its present form. The FDA
granted our request for an extension to February 28, 2019 to
resubmit our NDA for Oxycodone ER under section 505(b)(2) of the
U.S. Federal Food, Drug and Cosmetic Act.
In February 2018,
the Company met with the FDA to discuss the above-referenced CRL
for Oxycodone ER, including issues related to the blue dye in the
product candidate. Based on those discussions, the product
candidate will no longer include the blue dye. The blue dye was
intended to act as an additional deterrent if Oxycodone ER is
abused and serve as an early warning mechanism to flag potential
misuse or abuse. The FDA confirmed that the removal of the blue dye
is unlikely to have any impact on formulation quality and
performance. As a result, the Company will not be required to
repeat in vivo bioequivalence studies and pharmacokinetic studies
submitted in the Oxycodone ER NDA. The FDA also indicated that,
from an abuse liability perspective, Category 1 studies will not
have to be repeated on Oxycodone ER with the blue dye
removed.
The abuse liability
studies for the intranasal route of abuse commenced in May 2018
with subject screening, while the studies to support
abuse-deterrent label claims for the oral route of abuse commenced
in June 2018. The clinical part of both studies has now been
completed.
In March 2019, the
FDA acknowledged receipt of our resubmission of the Oxycodone ER
NDA filed on February 28, 2019. The FDA had informed the Company
that it considers the resubmission a complete response to the
September 22, 2017 action letter it issued in respect of the NDA.
The FDA also assigned a PDUFA goal date of August 28,
2019.
There can be no
assurance that the studies will be adequate, that we will not be
required to conduct further studies for Oxycodone ER, that the FDA
will approve any of the Company’s requested abuse-deterrent
label claims, that the FDA will meet its deadline for review, that
the FDA will ultimately approve our NDA for the sale of Oxycodone
ER in the U.S. market, or that it will ever be successfully
commercialized and produce significant revenue for
us.
In November 2018,
we announced that we entered into an exclusive licensing and
distribution agreement with a pharmaceutical distributor in the
Philippines pursuant to which the distributor was granted the
exclusive right, subject to regulatory approval, to import and
market Oxycodone ER in the Philippines. Under the terms of the
agreement, the distributor will be required to purchase a minimum
yearly quantity of our Oxycodone ER and we will be the
exclusive supplier of our Oxycodone ER. This multi-year agreement
is subject to early termination. There can be no assurance as
to when and if such product candidate will receive regulatory
approval for the sale in the Philippines or that, if so approved,
the product will be successfully commercialized there and produce
significant revenues for us.
Regabatin™ XR (Pregabalin
Extended-Release)
Another
Intellipharmaceutics non-generic controlled-release product under
development is Regabatin™ XR, pregabalin extended-release
capsules. Pregabalin is indicated for the management of neuropathic
pain associated with diabetic peripheral neuropathy, postherpetic
neuralgia, spinal cord injury and fibromyalgia. A
controlled-release version of pregabalin should reduce the number
of doses patients take, which could improve patient compliance, and
therefore possibly enhance clinical outcomes. Lyrica®
pregabalin, twice-a-day (“BID”) dosage and
three-times-a-day (“TID”) dosage, are drug products
marketed in the U.S. by Pfizer Inc. In October 2017, Pfizer also
received approval for a Lyrica® CR, a controlled-release
version of pregabalin. In 2014, we conducted and analyzed the
results of six Phase I clinical trials involving a twice-a-day
formulation and a once-a-day formulation. For formulations directed
to certain indications which include fibromyalgia, the results
suggested that Regabatin™ XR 82.5 mg BID dosage was
comparable in bioavailability to Lyrica® 50 mg
(immediate-release pregabalin) TID dosage. For formulations
directed to certain other indications which include neuropathic
pain associated with diabetic peripheral neuropathy, the results
suggested that Regabatin™ XR 165 mg once-a-day dosage was
comparable in bioavailability to Lyrica® 75 mg BID
dosage.
In March 2015, the
FDA accepted a Pre-Investigational New Drug (or Pre-IND) meeting
request for our once-a-day Regabatin™ XR non-generic
controlled release version of pregabalin under the NDA 505(b)(2)
regulatory pathway, with a view to possible commercialization in
the U.S. at some time following the December 30, 2018 expiry of the
patent covering the pregabalin molecule. Regabatin™ XR is
based on our controlled release drug delivery technology platform
which utilizes the symptomatology and chronobiology of fibromyalgia
in a formulation intended to provide a higher exposure of
pregabalin during the first 12 hours of dosing. Based on positive
feedback and guidance from the FDA, we submitted an IND application
for Regabatin
TM
XR in August 2015.
The FDA completed its review of the IND application and provided
constructive input that we will use towards further development of
the program. We believe our product candidate has significant
additional benefits to existing treatments and are currently
evaluating strategic options to advance this
opportunity.
There can be no
assurance that any additional Phase I or other clinical trials we
conduct will meet our expectations, that we will have sufficient
capital to conduct such trials, that we will be successful in
submitting an NDA 505(b)(2) filing with the FDA, that the FDA will
approve this product candidate for sale in the U.S. market, or that
it will ever be successfully commercialized.
Oxycodone
Hydrochloride IR Tablets (IPCI006) (Abuse Deterrent and
Overdose Resistant Oxycodone Hydrochloride Immediate Release
Tablets) – ROXICODONE®
In November 2018,
we announced that we had submitted an IND application to the FDA
for our IPCI006 oxycodone hydrochloride immediate release tablets
in the 5, 10, 15, 20 and 30 mg strengths. This novel drug
formulation incorporates the Company's PODRAS™, or
Paradoxical OverDose Resistance Activating System, delivery
technology and its nPODDDS™, or novel Point Of Divergence
Drug Delivery System, technology. IPCI006 is designed to prevent,
delay or limit the release of oxycodone hydrochloride when more
intact tablets than prescribed are ingested, thus delaying or
preventing overdose and allowing for sufficient time for a rescue
or medical intervention to take place. It is also intended to
present a significant barrier to abuse by snorting, "parachuting,"
injecting or smoking finely crushed oxycodone hydrochloride
immediate release tablets. The data generated from the studies
conducted under this IND is expected to form part of an NDA seeking
FDA approval for IPCI006 tablets.
If approved,
IPCI006 may be the first immediate release formulation of oxycodone
hydrochloride intended to simultaneously prevent or delay overdose
and prevent abuse by intranasal or intravenous routes.
There can be no
assurance that we will be successful in submitting any NDA with the
FDA, that the FDA will approve the Company's IPCI006 product
candidate for sale in the U.S. market or any related
abuse-deterrent label claims, or that it will ever be successfully
commercialized and produce significant revenue for us.
Other Potential Products and
Markets
We are continuing
our efforts to identify opportunities internationally, particularly
in China, that could if effectuated provide product distribution
alternatives through partnerships and therefore would not likely
require an investment or asset acquisition by us. Discussions
toward establishing a partnership to facilitate future development
activities in China are ongoing. We have not at this time entered
into and may not ever enter into any such
arrangements.
In addition, we are
seeking to develop key relationships in several other international
jurisdictions where we believe there may be substantial demand for
our generic products. These opportunities could potentially involve
out-licensing of our products, third-party manufacturing supply and
more efficient access to pharmaceutical ingredients and therefore
assist with the development of our product pipeline.
In November 2018,
we announced that we had entered into an exclusive licensing and
distribution agreement for our abuse resistant Oxycodone ER product
candidate and four generic drug products with a pharmaceutical
distributor in the Philippines. Under the terms of the agreement
the distributor was granted the exclusive right, subject to
regulatory approval, to import and market our first novel drug
formulation, abuse-deterrent Oxycodone ER, in the Philippines.
Additionally, this distributor was granted, subject to regulatory
approval, the exclusive right to import and market our generic
Seroquel XR®, Focalin XR®, Glucophage® XR, and
Keppra XR® in the Philippines. Under the terms of the
agreement, the distributor will be required to purchase a minimum
yearly quantity of all products included in the agreement and we
will be the exclusive supplier of said products. The
multi-year agreement with the Philippines distributor is subject to
early termination. Financial terms of the agreement have not been
disclosed. There can be no assurance as to when or if any of
our products or product candidates will receive regulatory approval
for sale in the Philippines or that, if so approved, any such
products will be successfully commercialized there and produce
significant revenues for us. Moreover, there can be no assurance
that we will not be required to conduct further studies for
Oxycodone ER, that the FDA will approve any of our requested
abuse-deterrent label claims or that the FDA will meet its deadline
for review or ultimately approve the NDA for the sale of Oxycodone
ER in the U.S. market, or that it will ever be successfully
commercialized and produce significant revenue for us.
In November 2018,
we announced that we had entered into two exclusive licensing and
distribution agreements with pharmaceutical distributors in
Malaysia and Vietnam.
A Malaysian
pharmaceutical distribution company was granted the exclusive
right, subject to regulatory approval, to import and market our
generic Seroquel XR® (quetiapine fumarate extended-release) in
Malaysia. Under the terms of the agreement, four strengths (50,
200, 300 and 400 mg) of generic Seroquel XR® will be
manufactured and supplied by us for distribution in Malaysia. We
are also in discussions to include other products in the agreement
with said distributor, who will be required to purchase a minimum
yearly quantity of all products included in the
agreement.
A Vietnamese
pharmaceutical distributor was granted the exclusive right, subject
to regulatory approval, to import and market our generic Seroquel
XR®, Glucophage® XR, and Keppra XR® in Vietnam.
Under the terms of the agreement, two strengths (500 and 750 mg) of
generic Glucophage® XR, three strengths (50, 150 and 200 mg)
of generic Seroquel XR® and one strength (500 mg) of generic
Keppra XR® will be manufactured and supplied by us for
distribution in Vietnam. The Vietnamese distributor will be
required to purchase a minimum yearly quantity of all products
included in the agreement.
The multi-year
agreements with the Malaysian and Vietnamese distributors are each
subject to early termination. Financial terms of the agreements
have not been disclosed. There can be no assurance as to when or if
any of our products will receive regulatory approval for sale in
Malaysia or Vietnam or that, if so approved, the products will be
successfully commercialized there and produce significant revenues
for the Company.
Additionally, in
January 2018 we announced we had commenced a R&D program of CBD
based products. As part of this R&D program, we filed multiple
provisional patent applications with the United States Patent and
Trademark Office pertaining to the delivery and application of
cannabinoid-based therapeutics, began talks with potential
commercialization partners in the cannabidiol industry, and
identified a potential supplier of CBD. The patent filings,
together with certain of our already issued drug delivery patents,
are intended to form the basis of the development of a pipeline of
novel controlled-release product candidates with CBD as the main
active ingredient.