Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction to Management's Discussion and Analysis
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") comments on our business operations, performance, financial position and other matters for the nine-month periods ended September 30, 2023 and 2022.
Unless otherwise indicated, all financial and statistical information included herein relates to continuing operations of the Company. Unless otherwise indicated or the context otherwise requires, the words, "IntelGenx, "Company", "we", "us", and "our" refer to IntelGenx Technologies Corp. and its subsidiaries, including IntelGenx Corp.
This MD&A should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes thereto. We also encourage you to refer to the Company's MD&A for the year ended December 31, 2022. In preparing this MD&A, we have taken into account information available to us up to November 9, 2023, the date of this MD&A, unless otherwise indicated.
Additional information relating to the Company, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Form 10-K"), is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the "SEC") website at www.sec.gov.
All dollar amounts are expressed in U.S. dollars, unless otherwise noted.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements within the meaning of applicable securities laws. All statements contained in this MD&A that are not clearly historical in nature are forward-looking, and the words "anticipate", "believe", "continue", "expect", "estimate", "intend", "may", "plan", "will", "shall" and other similar expressions are generally intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. These forward-looking statements are not based on historical facts but on management's expectations regarding future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Forward-looking statements involve significant known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those implied by forward-looking statements. These factors should be considered carefully and you should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this MD&A or incorporated by reference herein are based upon what management believes to be reasonable assumptions, there is no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A or as of the date specified in the documents incorporated by reference herein, as the case may be. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements were made or to reflect the occurrence of unanticipated events, except as may be required by applicable securities laws. The factors set forth in Item 1A., "Risk Factors" of the 2022 Form 10-K, as well as any cautionary language in this MD&A, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in the common stock, you should be aware that the occurrence of the events described as risk factors and elsewhere in this report could have a material adverse effect on our business, operating results and financial condition.
Company Background
We are a drug delivery company established in 2003 and headquartered in Montreal, Quebec, Canada. Our focus is on the contract development and manufacturing of novel oral thin film products for the pharmaceutical market. More recently, we have made the strategic decision to enter the Canadian cannabis market with a non-prescription cannabis infused oral film that launched in early 2021 and in 2020 we made the decision to enter the psychedelic market. As a full-service contract development and manufacturing organization ("CDMO"), we are offering partners a comprehensive portfolio of pharmaceutical services, including pharmaceutical research and development ("R&D"), clinical monitoring, regulatory support, tech transfer, manufacturing scale-up and commercial manufacturing.
Our business strategy is to leverage our proprietary drug delivery technologies and develop pharmaceutical products with tangible benefits for patients, for our partners and, once a developed product launches, retain the exclusive manufacturing rights.
Managing our project pipeline is a key Company success factor. We have identified three focus areas; psychedelics, cannabis and animal health where we believe we can establish a leadership position with our drug delivery technology. We have undertaken a strategy under which we will work with pharmaceutical companies in order to apply our oral film technology to pharmaceutical products for which patent protection is nearing expiration, a strategy which is often referred to as "lifecycle management." Under Section 505(b)(2) of the Federal Food, Drug, and Cosmetics Act (the "FDCA") ("Section 505(b)(2)"), the U.S. Food and Drug Administration (the "FDA") may grant market exclusivity for a term of up to three years following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or a combination.
The Section 505(b)(2) pathway is also the regulatory approach to be followed if an applicant intends to file an application for a product containing a drug that is already approved by the FDA for a certain indication and for which the applicant is seeking approval for a new indication or for a new use, the approval of which is required to be supported by new clinical trials, other than bioavailability studies. We have implemented a strategy under which we actively look for such so-called "repurposing opportunities" and determine whether our proprietary VersaFilm™ technology adds value to the product. We currently have two such drug repurposing projects in our development pipeline.
We continue to develop the existing products in our pipeline and may also perform R&D on other potential products as opportunities arise.
We have established a state-of-the-art manufacturing facility with the intent to manufacture all of our VersaFilm™ products in-house as we believe that this:
• represents a profitable business opportunity;
• will reduce our dependency upon third-party contract manufacturers, thereby protecting our manufacturing process know-how and intellectual property; and
• allows us to offer our clients and development partners a full service from product conception through to supply of the finished product.
We initiated a project to expand the existing manufacturing facility, the timing of which will be dictated in part by the completion of agreements with our commercial partners. This expansion might become necessary in order to meet expected production volumes from our commercial partners. The new facility should create a fourfold increase of our production capacity in addition to offering a one-stop shopping opportunity to our partners and provide better protection of our Intellectual Property.
Technology Platforms
Our main product development efforts are based upon three delivery platform technologies: (1) VersaFilm™, an oral film technology, (2) the VetaFilmTM technology platform for veterinary applications, and (3) DisinteQTM a disintegrating oral film technology.
VersaFilm™ is a drug delivery platform technology that enables the development of oral thin films, improving product performance through:
• rapid disintegration without the need for water;
• quicker buccal or sublingual absorption;
• potential for faster onset of action and increased bioavailability;
• potential for reduced adverse effects by bypassing first-pass metabolism;
• easy administration for patients who have problems swallowing tablets or capsules; pediatric and geriatric patients as well as patients who fear choking and/or are suffering from nausea (e.g., nausea resulting from chemotherapy, radiotherapy or any surgical treatment);
• small and thin size, making it convenient for consumers.
Our VersaFilm™ technology consists of a thin (25-35 micron) polymeric film comprised of United States Pharmacopeia components that are approved by the FDA for use in food, pharmaceutical, and cosmetic products. Derived from the edible film technology used for breath strips and initially developed for the instant delivery of savory flavors to food substrates, the VersaFilm™ technology is designed to provide a rapid response and improved bioavailability compared to existing conventional tablets. Our VersaFilm™ technology is intended for indications requiring rapid onset of action, such as migraine, opioid dependence, chronic pain, motion sickness, erectile dysfunction, and nausea or for drug that have a low oral bioavailability and require transmucosal absorption.
Our VetaFilm™ platform technology is designed for the application in companion animals. Dose acceptance and compliance are often a challenge for the care giver which can be overcome with our newly designed VetaFilm™ platform. VetaFilm™ is specifically formulated with flavors that are appealing to pets and to achieve rapid adhesion to the oral mucosa of the animal to achieve compliance.
Our new DISINTEQ™ oral disintegrating film formulations will provide different dissolution characteristics compared to VersaFilm®. Instead of quickly dissolving in the oral cavity, DISINTEQ™ formulations disintegrate at a controlled rate. This will allow a slower release of the drug into the oral cavity thereby avoiding saturation of the oral mucosal membranes and increasing mucosal absorption.
Product Opportunities that provide Tangible Patient Benefits
In addition to our three key strategic areas, we will offer our services to develop oral film products leveraging our VersaFilm™ technology that provide tangible patient benefits versus existing drug delivery forms. Patients with difficulties swallowing medication, pediatrics or geriatrics may benefit from oral films due to the ease of use. Similarly, we are working on oral films to improve bio-availability and/or response time versus existing drugs and thereby reducing side effects.
Development of New Drug Delivery Technologies
The rapidly disintegrating film technology contained in our VersaFilm™, is an example of our efforts to develop alternate technology platforms. As we work with various partners on different products, we seek opportunities to develop new proprietary technologies.
Most recent key developments
On July 21, 2023, the Company announced the resignation of Mr. J. Bernard (Bernie) Boudreau from the Board of Directors (the "Board") of the Company. Mr. Boudreau was a Director of the Company since 2006 and the Vice Chairman since 2014. He was also the Chair of the Corporate Governance and Nomination Committee.
On July 25, 2023, the Company announced the execution of a Research Grant Agreement with Karolinska University Hospital and that the manufacturing of both active and placebo films is underway in preparation for a planned multicentre, randomized, double-blind, placebo-controlled clinical study (the "Study") to investigate the use of IntelGenx's Montelukast VersaFilm® for the treatment of Parkinson's Disease ("PD").
The Study will be conducted at the Karolinska University Hospital under IntelGenx's previously announced research collaboration with Per Svenningsson, MD, PhD, who will serve as the Study's Principal Investigator. Dr. Svenningsson - a Professor of Clinical Neuroscience who investigates the pathogenic mechanisms of PD - previously conducted a clinical study utilizing the tablet form of Montelukast for the treatment of PD, where 2 tablets of 10 mg Montelukast were administered twice daily, for a total daily dose of 40 mg. Prof. Svenningsson will sponsor the study through a 20 million Swedish Crowns grant (approx. $2 million USD) awarded by the Swedish Research Council, Sweden's largest governmental research funding body.
Upon completion of the Study, IntelGenx will have the option to acquire the developed intellectual property rights and study data for a predetermined low five-digit amount and use the findings to further develop its Montelukast VersaFilm® program for PD treatment.
On August 01, 2023, the Company announced the completion of patient enrollment in the ongoing Montelukast VersaFilm® Phase 2a ("BUENA") clinical trial in patients with mild to moderate Alzheimer's Disease.
The Company successfully enrolled 52 patients in the study, 18 fewer than initially planned, in a study design modification that received a No Objection Letter ("NOL") from Health Canada. The NOL provided authorization to proceed with the study changes. IntelGenx, in consultation with its statistical consultant, Cogstate Ltd., determined that adjusting the p-value (which determines whether a drug effect exists) to p<0.1 will provide a basis for determining the extent to which effect sizes (the size of the drug effect) of 0.6 or greater (0.5 to <0.8 are considered 'medium' effect sizes, while 0.8 or greater are considered 'large' effect sizes1) are statistically significant.
GlobalData recently reported that the AD market is expected to reach $13.7 billion in 2030 across the eight major markets (U.S., France, Germany, Italy, Spain, U.K., Japan, and China), representing a compound annual growth rate of 20.0% from $2.2 billion in 2020. The expansion is primarily attributed to the significant unmet needs posed by AD, combined with the introduction of new therapies, including the recently approved Leqembi and donanemab, which is expected to be approved by year-end.
On August 10, 2023, the Company announced its first agreement for CDMO packaging service, expected to generate approximately $9 million in revenue over three years. The Company has entered into a binding term sheet agreement for the packaging of a pharmaceutical oral film product that its undisclosed CDMO customer is planning to commercialize in the United States. IntelGenx will package (film in pouch) the product at its cGMP manufacturing facility in Montreal.
Subject to satisfaction of remaining conditions, the parties will endeavor to enter into a definitive agreement as soon as is practicable.
On August 31, 2023 the Company announced the closing of the first tranche of a non-brokered private placement (the "Offering") of units ("Units") from atai Life Sciences AG ("atai") for aggregate gross proceeds of approximately US$3 million, including US$750,000 to be received by the Company pursuant to the Subsequent atai Subscription (as defined below) once the Shareholder Approvals (as defined below) have been obtained.
Pursuant to the Offering, (i) United States subscribers can subscribe for Units (the "US Units") at a price of US$1,000 per US Unit, each US Unit being comprised of a US$1,000 principal amount convertible promissory note (the "US Notes") and 5,405 common stock purchase warrants (the "US Warrants).
The US Notes are convertible into shares of common stock of the Company (the "Shares") at the option of the holder at a price of US$0.185 (the "US Conversion Price") at anytime from the date that is six (6) months following their issuance up to and including August 31, 2026, and bear interest at 12% per annum, payable quarterly, in arrears, with first payment due September 30, 2023 and every 3 months thereafter. The US Warrants entitle the holders thereof to purchase Shares at a price of US$0.26 per Share, for a period of 3 years following their issuance.
atai, a significant shareholder and partner of the Company, subscribed for 2,220 US Units for aggregate gross proceeds to the Company of US$2,220,000 (the "Initial atai Proceeds"). In addition, atai committed to subscribe for an additional 750 US Units for additional aggregate proceeds to the Company of US$750,000 (collectively with the Initial atai Proceeds, the "atai Proceeds") on the same terms (the "Subsequent atai Subscription"), subject to the Company obtaining the Shareholder Approvals (as defined below).
IntelGenx intends to use the proceeds of the Offering to fund the Company's wholly-owned Canadian subsidiary, continuing formulation and development efforts related to ongoing collaborations between IGXT and atai as well as working capital and expenses related to the Offering.
All securities issued in connection with the Offering, including Shares issuable pursuant to the conversion of the Notes or exercise of the Warrants, are subject to a 6-month hold period, during which time trading in the securities is restricted in accordance with applicable securities laws.
The Toronto Stock Exchange (the "TSX") has conditionally approved the Offering and the listing of the Shares, subject to the General Cap and the Insider Cap (each as defined below). The Offering and the listing of the Shares issuable in connection with the Offering, including Shares issuable pursuant to the conversion of the Notes or exercise of the Warrants, subject to the General Cap and Insider Cap, are subject to final approval of the TSX upon satisfaction of customary closing conditions.
Amendment to the Amended and Restated Loan Agreement
On August 31, 2023, the Company entered into an amending agreement (the "Amending Agreement") in respect of the amended and restated loan agreement dated as of September 14, 2021 (the "Loan Agreement") between the Company, as borrower, and atai, as lender pursuant to which, among other things, the maturity date of the Loan Agreement was extended from January 5, 2024 to January 5, 2025, and the Company granted additional security to atai over any non-licensed intellectual property of the Company (the "Loan Amendment").
On September 30, 2023, the Company and atai also agreed, subject to obtaining TSX and Shareholders approvals, to enter into a second amendment to the Loan Agreement (the "Second Amendment") to provide, among other things, for the ability for atai to convert the principal and accrued interest outstanding under the Loan Agreement into Shares at the US Conversion Price (the "Conversion Feature"). Assuming the Second Amendment is entered into between the Company and atai prior to the Shareholder Approvals being obtained (as defined below), the Second Amendment will include the same "blocker" provisions as those included in the Notes and the Warrants (see below "Shareholder Approvals").
Call Option
On September 30, 2023, the Company and atai agreed, subject to obtaining TSX approval and the Shareholder Approvals (as defined below), to enter into an amendment (the "Subscription Agreement Amendment") to the subscription agreement entered into by and between the Company and atai in connection with the Offering to provide atai with the right (the "Call Option") to purchase up to an additional 7,401 US Units (the "Call Option Units") at any time prior to August 31, 2026. The Call Option Units, to the extent atai exercises the Call Option in whole or in part, will be issued on the same terms as the US Units, including with respect to the US Conversion Price, maturity date, interest rate and the number of warrants issued in connection therewith. The Subscription Agreement Amendment will provide that the issuance of any Call Option Units will result in a corresponding reduction in atai's remaining purchase right pursuant to the amended and restated securities purchase agreement dated May 14, 2021, which such right to be reduced by the number of Shares issuable upon the conversion of the principal amount outstanding under such issued Call Option Units.
Shareholder Approvals
The Notes and the Warrants include "blocker" provisions to ensure that, unless securityholder approval is obtained in accordance with the rules of the TSX, (i) the aggregate number of Shares issuable in connection with the Offering (upon conversion of the Notes, exercise of the Warrants and/or the payment of interest on the Notes in Shares, as the case may be) is limited to 43,664,524 Shares, which equals 24.99% of the issued and outstanding Shares (on a non-diluted basis) as of the date hereof (the "General Cap"), and (ii) the aggregate number of Shares that may be issued to "insiders" of the Company (as such term is defined in the policies of the TSX) pursuant to the Offering (upon conversion of the Notes, exercise of the Warrants and/or the payment of interest on the Notes in Shares, as the case may be), is limited to 17,465,809 Shares, which equals 9.99% of the issued and outstanding Shares as of the date hereof (the "Insider Cap").
In accordance with the terms of the Notes and the Warrants, the Company intends to seek (i) securityholder approval of the issuance of Shares in connection with the Offering (upon conversion of the Notes, exercise of the Warrants and/or payment of interest on the Notes in Shares, as the case may be) above the General Cap, in accordance with Section 607(g)(i) of the TSX Company Manual (the "General Shareholder Approval"), and (ii) disinterested securityholder approval of the issuance of Shares to "insiders" of the Company (as such term is defined in the policies of the TSX), as of the date hereof, pursuant to the Offering (upon conversion of the Notes, exercise of the Warrants and/or the payment of interest on the Notes in Shares, as the case may be) above the Insider Cap, in accordance with Section 607(g)(ii) of the TSX Company Manual (the "Insider Shareholder Approval").
In addition, approval of the securityholders of the Company will be required in connection with the Conversion Feature, the Call Option and to authorize the Subsequent atai Subscription on the same terms as the Offering (together with the General Shareholder Approval and the Insider Shareholder Approval, the "Shareholder Approvals").
The Company will seek to obtain the Shareholder Approvals at an upcoming special meeting of Shareholders on November 28, 2023.
On September 19, 2023, the Company provided a regulatory update on Buprenorphine Buccal Film, for which an abbreviated new drug application ("ANDA") has been filed with the U.S. Food and Drug Administration ("FDA" or the "Agency") by its co-developer, Chemo Research SL, through its agent and affiliate, Xiromed LLC ("Xiromed").
As previously announced, Xiromed received a Complete Response Letter ("CRL") from the FDA in April 2023. In response to the CRL, Xiromed submitted to the FDA an Amendment to the ANDA, requesting priority review. In an Amendment Acknowledgement received from the FDA by Xiromed, the FDA granted priority review with a Generic Drug User Fee Act ("GDUFA") goal date for review of the Amendment of March 8, 2024, unless the Agency determines that an inspection is required. Alternatively, if the FDA determines that an inspection is required, the GDUFA goal date is July 8, 2024.
On September 21, 2023, the Company announced that it has received the first purchase order ("PO") for RIZAFILM®1 from its commercial partner in the United States, Gensco Pharma ("Gensco®").
The PO triggers an upfront order deposit payment. A pre-specified milestone payment to IntelGenx from Gensco® is also payable upon transfer of NDA. Both payments are reflected in the Company's Q3-2023 financial results. IntelGenx expects to ship the ordered RIZAFILM® product to Gensco® in Q1-2024 for immediate launch.
On November 6, 2023, the Company announced that it and Tilray Brands Inc. ("Tilray") have entered into a further amendment (the "Second Amendment") to their November 2018 license, development and supply agreement for the co-development and commercialization of cannabinoid-infused VersaFilm® products, settling IntelGenx's arbitration claim against Tilray.
Pursuant to the Second Amendment, IntelGenx has received an initial purchase order from Tilray for three SKUs (CBD20, THC10, THC10:CBD 10), with each SKU totalling 130,000 filmstrips. The Second Amendment also allows for IntelGenx's co-development and commercialization of CBD (pursuant to a previous amendment), THC, and combination THC:CBD products with additional partners. The Second Agreement removes any royalties paid to or from Tilray.
All amounts are expressed in thousands of U.S. dollars unless otherwise stated.
Currency rate fluctuations
Our operating currency is Canadian dollars, while our reporting currency is U.S. dollars. Accordingly, our results of operations and balance sheet position have been affected by currency rate fluctuations. In summary, our financial statements for the nine-month period ended September 30, 2023 report an accumulated other comprehensive loss mainly due to foreign currency translation adjustments of $2,167 primarily due to the fluctuations in the rates used to prepare our financial statements, $67 of which positively impacted our comprehensive loss for the nine-month period ended September 30, 2023. The following Management Discussion and Analysis takes this into consideration whenever material.
Reconciliation of Comprehensive Loss to Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA (Loss))
Adjusted EBITDA is a non-US GAAP financial measure. A reconciliation of the Adjusted EBITDA is presented in the table below. The Company uses adjusted financial measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than US-GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Company uses Adjusted EBITDA to measure its performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because the Company believes it provides meaningful information on the Company's financial condition and operating results.
IntelGenx obtains its Adjusted EBITDA measurement by adding / (deducting) to comprehensive loss, finance income and costs, depreciation and amortization, income taxes and foreign currency translation adjustment incurred during the period. IntelGenx also excludes the effects of certain non-monetary transactions recorded, such as share-based compensation, for its Adjusted EBITDA calculation. The Company believes it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance. Excluding these items does not imply they are necessarily nonrecurring. Share-based compensation costs are a component of employee and consultant's remuneration and can vary significantly with changes in the market price of the Company's shares. Foreign currency translation adjustments are a component of other comprehensive income and can vary significantly with currency fluctuations from one period to another. In addition, other items that do not impact core operating performance of the Company may vary significantly from one period to another. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of the Company's operating results over a period of time. Our method for calculating Adjusted EBITDA may differ from that used by other corporations.
Reconciliation of Non-US-GAAP Financial Information
| | | Three-month period
ended November 30 | | | Nine-month period
ended November 30 | |
| | | ended September 30, | | | ended September 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| | | $ | | | $ | | | $ | | | $ | |
| Comprehensive loss | | (2,547 | ) | | (2,975 | ) | | (8,480 | ) | | (9,239 | ) |
| Add (deduct): | | | | | | | | | | | | |
| Depreciation | | 200 | | | 196 | | | 587 | | | 587 | |
| Finance costs | | 390 | | | 286 | | | 1,055 | | | 1,063 | |
| Finance income | | (1 | ) | | (1 | ) | | (28 | ) | | (2 | ) |
| Share-based compensation | | 103 | | | 31 | | | 283 | | | 94 | |
| Other comprehensive (income) loss | | (212 | ) | | 299 | | | (67 | ) | | 1,293 | |
| | | | | | | | | | | | | |
| Adjusted EBITDA Loss | | (2,067 | ) | | (2,164 | ) | | (6,650 | ) | | (6,204 | ) |
Adjusted Earnings (Loss) before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA Loss)
Adjusted EBITDA (Loss) improved by $97 for the three-month period ended September 30, 2023 to ($2,067) compared to ($2,164) for the three-month period ended September 30, 2022. The improvement of Adjusted EBITDA (Loss) of $97 for the three-month period ended September 30, 2023 is mainly attributable to an increase in revenues of $176 and a decrease in Manufacturing expenses of $141 before consideration of stock-based compensation, offset by increases in R&D expenses of $165 before consideration of stock-based compensation and SG&A expenses of $55 before consideration of stock-based compensation expense.
Adjusted EBITDA (Loss) increased by $446 for the nine-month period ended September 30, 2023 to ($6,650) compared to ($6,204) for the nine-month period ended September 30, 2022. The increase in Adjusted EBITDA (Loss) of $446 for the nine-month period ended September 30, 2023 is mainly attributable to a decrease in revenues of $164 and increases in SG&A expenses of $234 before consideration of stock-based compensation and R&D expenses of $221 before consideration of stock-based compensation, offset by a decrease in Manufacturing expenses of $173 before consideration of stock-based compensation expense.
Results of operations for the three-month and nine-month periods ended September 30, 2023 compared with the three-month and nine-month periods ended September 30, 2022.
| | | Three-month period ended
September 30, | | | Nine-month period ended
September 30, | |
| | | | | | | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| | | | | | | | | | | | | |
| Revenue | $ | 318 | | $ | 142 | | $ | 613 | | | 777 | |
| | | | | | | | | | | | | |
| Research and Development Expenses | | 867 | | | 704 | | | 2,503 | | | 2,289 | |
| | | | | | | | | | | | | |
| Manufacturing expenses | | 283 | | | 429 | | | 1,192 | | | 1,381 | |
| | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | 1,338 | | | 1,204 | | | 3,851 | | | 3,405 | |
| | | | | | | | | | | | | |
| Depreciation of tangible assets | | 200 | | | 196 | | | 587 | | | 587 | |
| | | | | | | | | | | | | |
| Operating loss | | (2,370 | ) | | (2,391 | ) | | (7,520 | ) | | (6,885 | ) |
| | | | | | | | | | | | | |
| Net loss | | (2,759 | ) | | (2,676 | ) | | (8,547 | ) | | (7,946 | ) |
| | | | | | | | | | | | | |
| Comprehensive loss | | (2,547 | ) | | (2,975 | ) | | (8,480 | ) | | (9,239 | ) |
Revenue
Total revenues for the three-month period ended September 30, 2023 amounted to $318, representing an increase of $176 or 124% compared to $142 for the three-month period ended September 30, 2022. Total revenues for the nine-month period ended September 30, 2023 amounted to $613, representing a decrease of $164 or 21% compared to $777 for the nine-month period ended September 30, 2022. The increase for the three-month period ended September 30, 2023 compared to the last year's corresponding period is attributable to increases in R&D Revenues of $128, R&D Milestone Revenues of $125 and Royalties on Product Sales of $2, offset by a decrease in Product Revenues of $79. The decrease for the nine-month period ended September 30, 2023 compared to the last year's corresponding period is attributable to decreases in R&D Revenues of $195, Product Revenues of $79, and Royalties on Product Sales of $15, offset by a decrease in R&D Milestone Revenues of $125.
Research and development ("R&D") expenses
R&D expenses for the three-month period ended September 30, 2023 amounted to $867, representing an increase of $163 or 23%, compared to $704 for the three-month period ended September 30, 2022. R&D expenses for the nine-month period ended September 30, 2023 amounted to $2,503, representing an increase of $214 or 9%, compared to $2,289 for the nine-month period ended September 30, 2022.
The increase in R&D expenses for the three-month period ended September 30, 2023 is attributable to increases in the allocation of the 20% credit of $95 as per the strategic development agreement with atai, study costs of $86, and salary expenses of $66, offset by decreases in analytical costs of $44, lab supplies of $16, and an increase in R&D estimated tax credits of $24. The increase in R&D expenses for the nine-month period ended September 30, 2023 is attributable to increases in the allocation of the 20% credit of $132 as per the strategic development agreement with atai, study costs of $119, and salary expenses of $76, offset by a decrease in analytical costs of $70, lab supplies of $14 and an increase in R&D estimated tax credits of $29.
In the three-month period ended September 30, 2023 we recorded estimated Research and Development Tax Credits of $37, compared with $13 that was recorded in the same period of the previous year. In the nine-month period ended September 30, 2023 we recorded estimated Research and Development Tax Credits of $81, compared with $52 that was recorded in the same period of the previous year.
Manufacturing expenses
Manufacturing expenses for the three-month period ended September 30, 2023 amounted to $283, representing a decrease of $146 or 34%, compared to $429 for the three-month period ended September 30, 2022. Manufacturing expenses for the nine-month period ended September 30, 2023 amounted to $1,192 representing a decrease of $189 or 14%, compared to $1,381 for the nine-month period ended September 30, 2022.
The decrease in Manufacturing expenses for the three-month period ended September 30, 2023 is mainly attributable to decreases in salary expenses of $67 due to employee departures, supplies and consumables of $56, and repairs and maintenance of $40, offset by an increase in consulting fees of $6. The decrease in Manufacturing expenses for the nine-month period ended September 30, 2023 is mainly attributable to decreases in salary expenses of $152 due to employee departures, repairs and maintenance of $42, and quality expenses of $18, offset by an increase in supplies and consumables of $17.
Selling, general and administrative ("SG&A") expenses
SG&A expenses for the three-month period ended September 30, 2023 amounted to $1,338, representing an increase of $134 or 11%, compared to $1,204 for the three-month period ended September 30, 2022. SG&A expenses for the nine-month period ended September 30, 2023 amounted to $3,851 representing an increase of $446 or 13%, compared to $3,405 for the nine-month period ended September 30, 2022.
The increase in SG&A expenses for the three-month period ended September 30, 2023 is mainly attributable to increases in salary and compensation expenses of $162 (mainly attributable to the revaluation of previously issued DSUs of $45, stock-based compensation expense of $79 and hiring of new officers), investor relations expenses of $13, and the variation of the foreign exchange due to the depreciation of the CA dollar vs US currency in the amount of $33, offset by a decrease in professional fees of $86. The increase in SG&A expenses for the nine-month period ended September 30, 2023 is mainly attributable to increases in salary and compensation expenses of $784 (mainly attributable to the issuance of new DSUs and revaluation of previously issued DSUs of $200, stock-based compensation expense of $212, and hiring of new officers), investor relations expenses of $90, and insurance expense of $67, offset by the variation of the foreign exchange due to the depreciation of the CA dollar vs US currency in the amount of $281 and a decrease in professional fees of $210.
Depreciation of tangible assets
In the three-month period ended September 30, 2023 we recorded an expense of $200 for the depreciation of tangible assets, compared with an expense of $196 for the same period of the previous year. In the nine-month period ended September 30, 2023 we recorded an expense of $587 for the depreciation of tangible assets, compared with an expense of $587 for the same period of the previous year.
Share-based compensation expense, warrants and stock-based payments
Share-based compensation warrants and share-based payments expense for the three-month period ended September 30, 2023 amounted to $103 compared to $31 for the three-month period ended September 30, 2022. Share-based compensation warrants and share-based payments expense for the nine-month period ended September 30, 2023 amounted to $283 compared to $94 for the nine-month period ended September 30, 2022.
We expensed approximately $100 in the three-month period ended September 30, 2023 for options granted to our employees and $3 for options granted to a consultant, compared with $28 and $3, respectively that was expensed in the same period of the previous year.
We expensed approximately $274 in the nine-month period ended September 30, 2023 for options granted to our employees and $9 for options granted to a consultant, compared with $85 and $9, respectively that was expensed in the same period of the previous year.
There remains approximately $567 in stock-based compensation to be expensed in fiscal 2023 through 2027 of which $3 relates to the issuance of options to a consultant during 2021. We anticipate the issuance of additional options and warrants in the future, which will continue to result in stock-based compensation expense.
Key items from the balance sheet
| | | September
30, 2023 | | | December
31, 2022 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Current assets | $ | 3,211 | | $ | 3,788 | | $ | (577 | ) | | (15%) | |
| | | | | | | | | | | | | |
| Leasehold improvements and equipment, net | | 3,976 | | | 4,425 | | | (449 | ) | | (10%) | |
| | | | | | | | | | | | | |
| Security deposits | | 245 | | | 245 | | | - | | | 0% | |
| | | | | | | | | | | | | |
| Operating lease right-of-use asset | | 681 | | | 732 | | | (51 | ) | | (7%) | |
| | | | | | | | | | | | | |
| Current liabilities | | 3,816 | | | 2,374 | | | 1,442 | | | 61% | |
| | | | | | | | | | | | | |
| Long-term debt | | 8,500 | | | 5,500 | | | 3,000 | | | 55% | |
| | | | | | | | | | | | | |
| Convertible notes | | 6,371 | | | 4,272 | | | 2,099 | | | 49% | |
| | | | | | | | | | | | | |
| Operating lease liability | | 275 | | | 425 | | | (150 | ) | | (35%) | |
| | | | | | | | | | | | | |
| Finance lease liability | | 57 | | | 42 | | | 15 | | | 36% | |
| | | | | | | | | | | | | |
| Capital Stock | | 1 | | | 1 | | | 0 | | | 0% | |
| | | | | | | | | | | | | |
| Additional paid-in-capital | | 68,337 | | | 67,340 | | | 997 | | | 1% | |
Going concern
The Company has financed its operations to date primarily through public offerings of its common stock, proceeds from issuance of convertible notes and debentures, bank loans, royalty, up-front and milestone payments, license fees, proceeds from exercise of warrants and options, and research and development revenues. The Company has devoted substantially all of its resources to its drug development efforts, conducting clinical trials to further advance the product pipeline, the expansion of its facilities, protecting its intellectual property and general and administrative functions relating to these operations. The future success of the Company is dependent on its ability to develop its product pipeline and ultimately upon its ability to attain profitable operations. As of September 30, 2023, the Company had cash and short-term investments totaling approximately $2,077. The Company does not have sufficient existing cash and short-term investments to support operations for the next year following the issuance of these financial statements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to alleviate these conditions include pursuing one or more of the following steps to raise additional funding, none of which can be guaranteed or are entirely within the Company's control:
• Raise funding through the possible sale of the Company's common stock, including public or private equity financings.
• Raise funding through debt financing.
• Continue to seek partners to advance product pipeline.
• Expand oral film manufacturing activities.
• Initiate contract oral film manufacturing activities.
If the Company is unable to raise further capital when needed or on attractive terms, or if it is unable to procure partnership arrangements to advance its programs, the Company would be forced to potentially delay, reduce or eliminate some of its research and development programs and commercial activities.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The accompanying consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
Current assets
Current assets totaled $3,211 as at September 30, 2023 compared with $3,788 as at December 31, 2022. The decrease of $577 is attributable to decreases in short-term investments of $1,144, accounts receivable of $103 security deposits of $120, and investment tax credits receivable of $68, offset by increases in cash of $694, prepaid expenses of $145, and inventory of $19.
Cash
Cash totaled $1,904 as at September 30, 2023 representing an increase of $694 compared with the balance of $1,210 as at December 31, 2022. The increase in cash on hand relates to net cash provided by financing activities of $5,609, net cash provided by investing activities of $1,058, and a positive foreign exchange effect of $25, offset by net cash used in operating activities of $5,998.
Accounts receivable
Accounts receivable totaled $606 as at September 30, 2023 representing a decrease of $103 compared with the balance of $709 as at December 31, 2022. The main reason for the decrease is the collection in the nine-month period ended September 30, 2023 of revenues accounted for as at December 31, 2022 offset by revenues accounted for as at September 30, 2023.
Prepaid expenses
As at September 30, 2023 prepaid expenses totaled $282 compared with $137 as of December 31, 2022. The increase may be explained by advance payments made in the nine-month period ended September 30, 2023.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $91 as at September 30, 2023 compared with $159 as at December 31, 2022. The decrease is attributable to the fact that the 2022 amount was collected in 2023, offset by the accrual estimated and recorded for the nine-month period ended September 30, 2023.
Leasehold improvements and equipment
As at September 30, 2023, the net book value of leasehold improvements and equipment amounted to $3,976, compared to $4,425 at December 31, 2022. In the nine-month period ended September 30, 2023 additions to assets totaled $117 and comprised of $66 for lab equipment, $39 for leasehold improvements, $9 for manufacturing equipment and $3 for computer equipment, offset by depreciation expense of $587 and variation of foreign exchange fluctuation.
Security deposit
A security deposit in the amount of CA$300 ($222) in respect of an agreement to lease approximately 17,000 square feet in a property located at 6420 Abrams, St-Laurent, Quebec, Canada was recorded as at September 30, 2023. Security deposits in the amount of CA$26 ($19) for utilities and CA$5 ($4) for Cannabis license were also recorded as at September 30, 2023. Security deposit in the amount of CA$100 ($74) for Company credit cards was also recorded as at September 30, 2023 but classified as short-term.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $3,193 as at September 30, 2023 compared with $2,102 as at December 31, 2022. The increase is attributable to an increase in trade payable for R&D and Manufacturing costs incurred and an increase in the accrual recorded for DSUs granted to directors.
Loan payable
Loan payable totaled $8,500 as at September 30, 2023 compared with $5,500 as at December 31, 2022. atai has granted the Company a secured loan in the amount of $8,500, bearing interest at 8%. The loan is guaranteed by the Company and secured by all present and future movable property, rights and assets of the Company, excluding any intellectual property or technology controlled or owned by the Company.
On August 31, 2023, the Company entered into an amending agreement (the "Amending Agreement") in respect of the amended and restated loan agreement dated as of September 14, 2021 (the "Loan Agreement") between the Company, as borrower, and atai, as lender pursuant to which, among other things, the maturity date of the Loan Agreement was extended from January 5, 2024 to January 5, 2025, and the Company granted additional security to atai over any non-licensed intellectual property of the Company (the "Loan Amendment").
On September 30, 2023, the Company and atai also agreed, subject to obtaining TSX and Shareholders approval, to enter into a second amendment to the Loan Agreement (the "Second Amendment") to provide, among other things, for the ability for atai to convert the principal and accrued interest outstanding under the Loan Agreement into Shares.
The interest for the interest-month period ended September 30, 2023 amounts to $501 and is recorded in financing and interest expense ($311 in 2022).
Convertible notes
Convertible notes totaled $6,371 as at September 30, 2023 as compared to $4,272 as at December 31, 2022. The convertible notes have been recorded as a liability. The accretion expense for the period ended September 30, 2023 amounts to $170 ($130 in 2022). The interest on the convertible notes as at September 30, 2023 amounts to $347 ($285 in 2022) and is recorded in Financing and interest expense.
Shareholders' equity
As at September 30, 2023, we had accumulated a deficit of $77,077 compared with an accumulated deficit of $68,530 as at December 31, 2022. Total assets amounted to $8,113 and shareholders' deficit totaled $10,906 as at September 30, 2023, compared with total assets and shareholders' deficit of $9,190 and $3,423 respectively, as at December 31, 2022.
Capital stock
As at September 30, 2023 capital stock amounted to $1.746 (December 31, 2022: $1.746). Capital stock is disclosed at its par value with the excess of proceeds shown in Additional Paid-in-Capital.
Additional paid-in-capital
Additional paid-in capital totaled $68,337 as at September 30, 2023, as compared to $67,340 as at December 31, 2022. Additional paid in capital increased by $997. The increase is due to the value of the atai warrants in connection with August 2023 private placement of $693, the value of the Agents' warrants in connection with the March 2023 private placement of $19, stock-based compensation attributable to the amortization of stock options granted to employees of $283 and $2 for stock options exercised.
Taxation
As at December 31, 2022, the date of our latest annual tax return, we had Canadian and provincial net operating losses of approximately $45,041 (December 31, 2021: $39,823) and $52,004 (December 31, 2021: $43,482) respectively, which may be applied against earnings of future years. Utilization of the net operating losses is subject to significant limitations imposed by the change in control provisions. Canadian and provincial losses will be expiring between 2026 and 2042. A portion of the net operating losses may expire before they can be utilized.
As at December 31, 2022, the Company had non-refundable tax credits of $3,004 thousand (2021: $2,912 thousand) of which $8 thousand is expiring in 2026, $10 thousand is expiring in 2027, $166 thousand is expiring in 2028, $146 thousand is expiring in 2029, $124 thousand is expiring in 2030, $132 thousand is expiring in 2031, $166 thousand is expiring in 2032, $110 thousand is expiring in 2033, $84 thousand expiring in 2034, $98 thousand is expiring in 2035, $136 thousand expiring in 2036, $259 thousand is expiring in 2037, $558 thousand expiring in 2038, $338 thousand expiring in 2039, $220 thousand expiring in 2040, $225 thousand expiring in 2041, and $224 expiring in 2042 and undeducted research and development expenses of $17,031 thousand (2021: $16,566 thousand) with no expiration date.
The deferred tax benefit of these items was not recognized in the accounts as it has been fully provided for.
Key items from the statement of cash flows
| | | September
30, 2023 | | | September
30, 2022 | | | Increase/
(Decrease) | | | Percentage
Increase/
(Decrease) | |
| | | | | | | | | | | | | |
| Operating Activities | $ | (5,999 | ) | $ | (6,963 | ) | $ | 964 | | | (14%) | |
| Financing Activities | | 5,609 | | | 2,975 | | | 2,634 | | | 89% | |
| Investing Activities | | 1,058 | | | 1,233 | | | (175 | ) | | (14%) | |
| Cash - end of period | | 1,904 | | | 1,498 | | | 406 | | | 27% | |
Statement of cash flows
Net cash used in operating activities was $5,999 for the nine-month period ended September 30, 2023, compared to $6,963 for the nine-month period ended September 30, 2022. For the nine-month period ended September 30, 2023, net cash used by operating activities consisted of a net loss of $8,547 (2022: $7,946) before depreciation, accretion expense, stock-based compensation, DSU expense, interest paid by issuance of common shares, and lease non-cash expense in the amount of $1,097 (2022: $937) and an increase in non-cash operating elements of working capital of $1,451 (2022: $46).
The net cash provided by financing activities was $5,609 for the nine-month period ended September 30, 2023, compared to $2,975 for the same period of 2022. For the nine-month period ended September 30, 2023, an amount of $3,000 derives from the issuance of a loan, an amount of $2,220 derives from atai private placement, an amount of $697 derives from net proceeds from convertible notes, and an amount of $2 derives from the proceeds from exercise of stock options, offset by transaction costs of atai private placement of $234, transaction costs of convertible notes of $40 and finance lease payments of $36. For the nine-month period ended September 30, 2022, an amount of $3,000 derives from issuance of a loan, offset by finance lease payments for an amount of $25.
Net cash provided by investing activities amounted to $1,058 for the nine-month period ended September 30, 2023, compared to net cash provided by investing activities of $1233 for the nine-month period ended September 30, 2022. The net cash provided by investing activities for the nine-month period ended September 30, 2023 relates to the redemption of short-term investments of $1,175, offset by the purchase of fixed assets of $117. The net cash provided by investing activities for the nine-month period ended September 30, 2022 relates to the redemption of short-term investments of $7,219, offset by the acquisition of short-term investments of $5,739 and the purchase of fixed assets of $247.
The balance of cash as at September 30, 2023 amounted to $1,904, compared to $1,498 as at September 30, 2022.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.