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 July 8, 2019, we
announced that the Company has obtained an equity financing
commitment of up to $10,000,000 from Silverback Capital
Corporation, a private investment firm (“Silverback
Capital”). During the 36-month term of the equity financing
commitment, we may sell shares of our common stock to Silverback
Capital up to the $10,000,000 total commitment at a 25% discount to
the volume weighted average price of the Company’s common
stock for the 5 trading days prior to the date the Company provides
notice to Silverback Capital, or if the maximum discount rate
allowed by the Company’s principal exchange is less than 25%,
then the maximum discount rate allowed. The Company will determine,
in its sole discretion, the timing and amount of any sales of its
stock, subject to certain conditions. Upon notice by the Company,
Silverback Capital is required to purchase the shares, subject to
certain conditions, including, but not limited to, that there is an
effective U.S. registration statement covering resale of the
shares. There can be no assurance that the equity financing
commitment from Silverback Capital can be completed as planned, or
at all.
●
On June 4,
2019, the Company presented at the 9th annual LD Micro
Invitational. LD Micro was founded in
2006 with the sole purpose of being an independent resource in the
microcap space and now hosts several events
annually.
●
On May 30, 2019, we
announced that the Company’s pre-existing license to conduct
activities with Cannabidiol (“CBD”) has been migrated
by Health Canada to a Cannabis Drug License (“CDL”)
under the Cannabis Regulations. Intellipharmaceutics’ new
Cannabis Drug License allows the Company to continue to possess
cannabis, produce a drug containing cannabis and sell a drug
containing cannabis. The CDL is unique from other forms of cannabis
licenses in Canada as, according to Health Canada, it is a
requirement for any company that intends to produce and sell a
prescription drug containing cannabis or cannabinoids. Only
companies, such as Intellipharmaceutics, with a Health Canada
issued Drug Establishment License are eligible to apply for a
Cannabis Drug License. There can be no assurance that we will be
able to develop cannabis-based products or that any cannabis-based
product candidates we develop will ever be successfully
commercialized or produce significant, or any, revenue for
us.
●
On May 29, 2019,
the Company held its Annual Meeting of its shareholders at which
the Company’s shareholders voted to ratify the reappointment
of MNP LLP, Chartered Professional Accountants (“MNP”),
as the auditor of the Company and to authorize the directors to fix
the auditor’s remuneration for MNP and vote to re-elect the
following members of the Company’s Board of Directors Dr. Isa
Odidi, Dr. Amina Odidi, Bahadur Madhani, Kenneth Keirstead, Norman
Betts and Shawn Graham.
●
On May 10, 2019, we
announced that the Company
has received approval from the U.S. Food and Drug Administration
("FDA") for the Company's abbreviated new drug application ("ANDA")
for desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. The approved product is a generic equivalent of the
branded product Pristiq®. Desvenlafaxine extended-release
tablets are a serotonin and norepinephrine reuptake inhibitor
("SNRI") indicated for the treatment of major depressive disorder
("MDD"). There can be no assurance that the Company's
desvenlafaxine extended-release 50 mg, and 100 mg tablets will be
successfully commercialized and produce significant revenue for
us.
●
On April 24, 2019,
an order was issued, setting the trial date for the Company's
ongoing Purdue litigation case, case number 17-392 in the District
of Delaware, with the trial is scheduled to begin on November 12,
2019 and a decision is expected by March 2, 2020. The 30-month stay
date is now March 2, 2020. On April 4, 2019, the U.S. Federal
Circuit Court of Appeals affirmed the invalidity of one Purdue
Oxycontin formulation patent, subject to further appeal to the U.S.
Supreme Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
●
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.
●
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that will mature
on November 1, 2019, bears interest at a rate of 12% per annum and
is 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, are the holders of the 2019
Debenture.
●
In March 2019, we
announced that we had resubmitted, and, that the FDA acknowledged
receipt of our resubmission of the Oxycodone ER New Drug
Application (“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. However, there
can be no assurance that the Company 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 or that
the FDA will meet its deadline for review and ultimately approve
the NDA for the sale of Oxycodone ER in the U.S. market, or that it
will ever be successfully commercialized.
●
As more fully
described below (under the heading “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 under the symbol “IPCIF”. The
Company is also listed on the Toronto Stock Exchange under the
symbol “IPCI” and the Company's non-compliance with
Nasdaq's bid price requirement does not impact the Company's
listing or trading status on that exchange.
●
On February 21,
2019, we and our CEO, Dr. Isa Odidi (the “Defendants”),
were served with a Statement of Claim filed in the Superior Court
of Justice of Ontario (the “Court”) for a proposed
class action under the Ontario Class Proceedings Act (the
“Action”). The Action was brought by Victor Romita, the
proposed representative plaintiff (the “Plaintiff”), on
behalf of a class of Canadian persons (the “Class”) who
traded shares of the Company during the period from February 29,
2016 to July 26, 2017 (the “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 (the
“Motion”). On June 28, 2019, the Court endorsed a
timetable for the exchange of material leading to the hearing of
the Motion scheduled for January 27-28, 2020. No date has been set
for the hearing of the certification application.. 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 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.
We also have a CDL from Health Canada.
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, 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 May 2019 we
received 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 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
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 RegabatinTM. 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. 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 PODRASTM delivery technology
platform was designed to prevent an 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
HypermatrixTM
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.
nPODDDSTM
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.
PODRASTM
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 PODRASTM 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
|
$867
|
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
|
$130
|
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
|
$803
|
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
|
$375
|
Intellipharmaceutics
|
Metformin hydrochloride extended-release tablets
|
Glucophage® XR
|
Management of type
2 diabetes
|
Received final
approval for 500 and 750 mg strengths from FDA
|
ANDA
|
$210
(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
|
$153
|
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
|
$518
|
Intellipharmaceutics
and Mallinckrodt
(US)(5)
|
Desvenlafaxine extended-release tablets
|
Pristiq®
|
Depression
|
Received approval
for the 50 and 100 mg strengths from FDA
|
ANDA
|
$229
|
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
|
$59
|
Intellipharmaceutics
|
Oxycodone hydrochloride controlled-release capsules
|
OxyContin®
|
Pain
|
NDA application
accepted February 2017 and under review by FDA
|
NDA
505(b)(2)
|
$1,357
|
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)
|
$5,467
|
Intellipharmaceutics
|
Ranolazine extended-release tablets
|
Ranexa®
|
Chronic
angina
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
$997
|
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
May 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 May 2019, we
received 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 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
(AUCt)
and on the measure of area under the curve infinity
(AUCinf).
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, AUC0-t and
AUC0-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 was
scheduled for June 2020.
An order was issued
on April 24, 2019 setting the trial date for the Company's ongoing
Purdue litigation case, case number 17-392 in the District of
Delaware, with the trial is scheduled to begin on November 12, 2019
and a decision is expected by March 2, 2020. The 30-month stay date
is now March 2, 2020. On April 4, 2019, the U.S. Federal Circuit
Court of Appeals affirmed the invalidity of one Purdue Oxycontin
formulation patent, subject to further appeal to the U.S. Supreme
Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
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 for the oral route
commenced in June 2018. The clinical part of both studies was
completed and the results included in the NDA
resubmission.
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 RegabatinTM 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 an 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. On May 30, 2019 we announced that the
Company’s pre-existing license to conduct activities with
Cannabidiol (“CBD”) has been migrated by Health Canada
to a Cannabis Drug License (“CDL”) under the Cannabis
Regulations. Intellipharmaceutics’ new Cannabis Drug License
allows the Company to continue to possess cannabis, produce a drug
containing cannabis and sell a drug containing cannabis. The CDL is
unique from other forms of cannabis licenses in Canada as,
according to Health Canada, it is a requirement for any company
that intends to produce and sell a prescription drug containing
cannabis or cannabinoids. Only companies, such as
Intellipharmaceutics, with a Health Canada issued Drug
Establishment License are eligible to apply for a Cannabis Drug
License. There can be no assurance that we will be able to develop
cannabis-based products or that any cannabis-based product
candidates we develop will ever be successfully commercialized or
produce significant revenue for us.
RELATED
PARTY TRANSACTIONS
In January 2013,
the Company completed the private placement financing of the
unsecured 2013 Debenture in the original principal amount of $1.5
million. 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. Drs. Isa and Amina Odidi, who are directors, executive
officers and shareholders of our Company, provided us with the
original $1.5 million of the proceeds for the 2013 Debenture. In
December 2016, a principal repayment of $150,000 was made on the
2013 Debenture and the maturity date was extended until April 1,
2017. Effective March 28, 2017, the maturity date of the 2013
Debenture was extended to October 1, 2017. Effective September 28,
2017, the maturity date of the 2013 Debenture was further extended
to October 1, 2018. 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. In December 2018, a principal repayment of
$300,000 was made on the 2013 Debenture. 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 was refinanced by the 2019 Debenture. On
May 1, 2019, the 2019 Debenture was issued with a principal amount
of $1,050,000, that will mature on November 1, 2019, bears interest
at a rate of 12% per annum and is 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, are the holders
of the 2019 Debenture.On September 10, 2018, the Company completed
the 2018 Debenture Financing. The 2018 Debenture bears interest at
a rate of 10% per annum, payable monthly, may be prepaid at any
time at our option, and is convertible into common shares at any
time prior to the maturity date at a conversion price of $3.00 per
common share at the option of the holder. Drs. Isa and Amina Odidi,
who are directors, executive officers and shareholders of our
Company, provided us with the original $500,000 of proceeds for the
2018 Debenture. The maturity date for the 2018 Debenture is
September 1, 2020.
To the
Company’s knowledge, Armistice Capital Master Fund, Ltd.
and/or its affiliates, previously a holder of in excess of 10% of
the Company’s outstanding common shares, participated in (i)
a registered direct offering in October 2017, pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright & Co., LLC
(“Wainwright”), and (ii) the registered direct
offerings completed in March 2018, pursuant to placement agent
agreements dated March 12, 2018 and March 18, 2018 between the
Company and Wainwright; and (iii) the underwritten public offering
completed in October 2018. Armistice Capital, LLC, Armistice
Capital Master Fund, Ltd., and Steven Boyd reported on a Schedule
13-G/A filed with the SEC on February 14, 2019, that it was the
beneficial owner of less than 10% of the Company’s common
shares; and, based on the number of common shares of the Company
outstanding as at May 31, 2019, these common shares currently
represent approximately 2.6% of the Company’s common
shares.
The Company’s
Corporate Governance Committee, made up of independent directors,
oversees any potential transaction and negotiation that could give
rise to a related party transaction or create a conflict of
interest, and conducts an appropriate review.
DISCLOSURE
CONTROLS AND PROCEDURES
Under the
supervision and with the participation of our management, including
the Chief Executive Officer and the Chief Financial Officer, we
have evaluated the effectiveness of our disclosure controls and
procedures as of May 31, 2019. Disclosure controls and procedures
are designed to ensure that the information required to be
disclosed by the Company in the reports it files or submits under
securities legislation is recorded, processed, summarized and
reported on a timely basis and that such information is accumulated
and communicated to management, including the Company’s Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow required disclosures to be made in a timely fashion. Based on
that evaluation, management has concluded that these disclosure
controls and procedures were effective as of May 31,
2019.
INTERNAL
CONTROL OVER FINANCIAL REPORTING
The management of
our Company is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company.
Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with generally accepted accounting principles and includes those
policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company’s assets,
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
the Company’s receipts and expenditures are being made only
in accordance with authorizations of the Company’s management
and directors, and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Management assessed
the effectiveness of the Company’s internal control over
financial reporting using the 1992 Internal Control-Integrated
Framework developed by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO").
Based on this
assessment, management concluded that the Company’s internal
control over financial reporting was effective as of May 31,
2019.
In the second
quarter of 2017, we initiated the transition from the COSO
1992 Internal Control - Integrated Framework to the COSO
2013 Internal Control - Integrated Framework. Management has
completed the business risk and information technology components
and is working towards completion of controls over financial
reporting as well as fraud risk. We currently expect the transition
to this new framework to continue through the third quarter of
fiscal year 2019. Although we do not expect to experience
significant changes in internal control over financial reporting as
a result of our transition, we may identify significant
deficiencies or material weaknesses and incur additional costs in
the future as a result of our transition.
Changes
in Internal Control over Financial Reporting
During the three
months ended May 31, 2019, there were no changes made to the
Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting, and
specifically, there were no changes in accounting functions, board
or related committees and charters, or auditors; no functions,
controls or financial reporting processes of any constituent
entities were adopted as the Company’s functions, controls
and financial processes; and no other significant business
processes were implemented.
OFF-BALANCE
SHEET ARRANGEMENTS
The Company, as
part of its ongoing business, does not participate in transactions
that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as
structured finance or special purpose entities (“SPE”),
which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes. As of May 31, 2019, the Company was not involved
in any material unconsolidated SPE transactions.
RISKS
AND UNCERTAINTIES
We are a R&D
company that received final FDA approval of our once daily generic
Focalin XR® capsules for the 15 and 30 mg strengths in
November 2013. 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
their timely payment to us of the contracted calendar quarterly
payments as they come due. Our near term ability to generate
significant revenue will depend upon successful commercialization
of our products in the U.S., where the branded Focalin XR®
product and the branded Seroquel XR® product are in the
market. Although we have several other products in our pipeline,
and received final approval from the FDA for our generic Keppra
XR® (levetiracetam extended-release tablets) for the 500 and
750 mg strengths, final approval from the FDA for our generic
Glucophage XR® in the 500 and 750 mg strengths, final approval
from the FDA for our generic Effexor XR® in the 37.5, 75, and
150 mg strengths and of our generic Seroquel XR®, final
approval from the FDA for our generic Pristiq® (desvenlafaxine
extended-release tablets) in the 50 and 100 mg strengths the
majority of the products in our pipeline are at earlier stages of
development. We are exploring licensing and commercial alternatives
for our generic Seroquel XR®, generic Keppra XR®, generic
Effexor XR® and generic Glucophage XR® product strengths
that have been approved by the FDA. Potential licensing and
commercial alternatives for these products include licensing and
distribution deals for regions outside of North America. Because of
these characteristics, the Company is subject to certain risks and
uncertainties, or risk factors. The Company cannot predict or
identify all such risk factors nor can it predict the impact, if
any, of the risk factors on its business operations or the extent
to which a factor, event or any such combination may materially
change future results of financial position from those reported or
projected in any forward looking statements. Accordingly, the
Company cautions the reader not to rely on reported financial
information and forward-looking statements to predict actual future
results. This document and the accompanying financial information
should be read in conjunction with this statement concerning risks
and uncertainties. Some of the risks, uncertainties and events that
may affect the Company, its business, operations and results of
operations are given in this section. However, the factors and
uncertainties are not limited to those stated.
We believe that the
revenues derived from our generic Focalin XR® capsules are
subject to wholesaler buying patterns, increased generic
competition negatively impacting price, margins and market share
consistent with industry post-exclusivity experience and, to a
lesser extent, seasonality (as these products are indicated for
conditions including attention deficit hyperactivity disorder which
we expect may see increases in prescription rates during the school
term and declines in prescription rates during the summer months).
Accordingly, these factors may cause our operating results to
fluctuate.
Since we commenced
operations, we have incurred accumulated losses through May 31,
2019. We had an accumulated deficit of $90,894,484 as of May 31,
2019 and have incurred additional losses since such date. As we
engage in the development of products in our pipeline, we may
continue to incur further losses. There can be no assurance that we
will ever be able to achieve or sustain profitability or positive
cash flow. Our ultimate success will depend on how many of our
product candidates receive the approval by the FDA, Health Canada,
and the regulatory authorities of the other countries in which are
products are proposed to be sold and whether we are able to
successfully market approved products. We cannot be certain that we
will be able to receive FDA, Health Canada, or such other
regulatory approval for any of our current or future product
candidates, that we will reach the level of sales and revenues
necessary to achieve and sustain profitability, or that we can
secure other capital sources on terms or in amounts sufficient to
meet our needs, or at all.
Our business
requires substantial capital investment in order to conduct the
R&D, clinical and regulatory activities and to defend against
patent litigation claims in order to bring our products to market
and to establish commercial manufacturing, marketing and sales
capabilities. In the event that we do not obtain sufficient
additional capital, it will raise substantial doubt about our
ability to continue as a going concern, realize our assets, and pay
our liabilities as they become due.
Nasdaq has delisted
our common shares from trading on its exchange which could limit
investors’ ability to make transactions in our shares and
subject us to additional trading restrictions. Subsequent to
Nasdaq delisting our shares from trading on its exchange, our
shares are quoted in the over-the-counter market on the OTCQB. We
could face material adverse consequences due to the delisting of
our shares from Nasdaq, including: (i) a limited availability of
market quotations for our shares; (ii) reduced liquidity for our
shares; (iii) a determination that our common shares are
“penny stock” which will require brokers trading in our
common shares to adhere to more stringent rules and possibly result
in a reduced level of trading activity in the secondary trading
market for our shares; (iv) a limited amount of news and analyst
coverage; and (v) restrictions on our ability to issue additional
securities or obtain additional financing in the
future.
Our cash outflows
are expected to consist primarily of internal and external R&D,
legal and consulting expenditures to advance our product pipeline
and selling, general and administrative expenses to support our
commercialization efforts. Depending upon the results of our
R&D programs, the impact of the litigation against us and the
availability of financial resources, we could decide to accelerate,
terminate, or reduce certain projects, or commence new ones. Any
failure on our part to successfully commercialize approved products
or raise additional funds on terms favorable to us, or at all, may
require us to significantly change or curtail our 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 us not taking advantage of business opportunities,
in the termination or delay of clinical trials or in not taking any
necessary actions required by the FDA or Health Canada for one or
more of our product candidates, in curtailment of our product
development programs designed to identify new product candidates,
in the sale or assignment of rights to our technologies, products
or product candidates, and/or in our inability to file ANDAs, ANDSs
or NDAs at all or in time to competitively market our products or
product candidates.
We set goals
regarding the expected timing of meeting certain corporate
objectives, such as the commencement and completion of clinical
trials, anticipated regulatory approval and product launch dates.
From time to time, we may make certain public statements regarding
these goals. The actual timing of these events can vary
dramatically due to, among other things, insufficient funding,
delays or failures in our clinical trials or bioequivalence
studies, the uncertainties inherent in the regulatory approval
process, such as failure to secure requested product labeling
approvals, requests for additional information, delays in achieving
manufacturing or marketing arrangements necessary to commercialize
our product candidates and failure by our collaborators, marketing
and distribution partners, suppliers and other third parties to
fulfill contractual obligations. In addition, the possibility of a
patent infringement suit, such as the Purdue litigation, regarding
one or more of our product candidates could delay final FDA
approval of such candidates and materially adversely affect our
ability to market our products. Even if we are found not to
infringe Purdue’s or any other plaintiff’s patent
claims or the claims are found invalid or unenforceable, defending
any such infringement claims could be expensive and time-consuming
and could distract management from their normal responsibilities.
If we fail to achieve one or more of our planned goals, the price
of our common shares could decline.
Further risks and
uncertainties affecting us can be found elsewhere in this document,
in our latest Annual Information Form, our latest Form F-1 and
F-3 registration statements,
each as amended or supplemented (including any documents forming a
part thereof or incorporated by reference therein), and our latest
Form 20-F, as amended, and other public documents filed on SEDAR
and EDGAR.
ADDITIONAL INFORMATION
Additional
information relating to the Company, including the Company’s
latest Annual Information Form, our latest Form F-1 and F-3
registration statements, each as amended or supplemented (including
any documents forming a part thereof or incorporated by reference
therein), and latest Form 20-F, as amended, can be located under
the Company’s profile on the SEDAR website at www.sedar.com and on the EDGAR section
of the SEC’s website at www.sec.gov.
EXHIBIT
99.2
Condensed unaudited
interim consolidated financial statements of
Intellipharmaceutics
International
Inc.
May 31,
2019
Intellipharmaceutics
International Inc.
May 31,
2019
Table of
contents
Condensed unaudited
interim consolidated balance sheets
|
2
|
Condensed unaudited
interim consolidated statements of operations and comprehensive
loss
|
3
|
Condensed unaudited
interim consolidated statements of shareholders’ equity
(deficiency)
|
4
|
Condensed unaudited
interim consolidated statements of cash flows
|
5
|
Notes to the
condensed unaudited interim consolidated financial
statements
|
6-29
|
Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated balance sheets
|
|
|
As
at May 31, 2019 and November 30, 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
$
|
$
|
|
|
|
Assets
|
|
|
Current
|
|
|
Cash
|
1,030,179
|
6,641,877
|
Accounts
receivable, net
|
294,824
|
239,063
|
Investment
tax credits
|
1,088,849
|
998,849
|
Prepaid
expenses, sundry and other assets
|
417,393
|
586,794
|
Inventory
(Note 3)
|
219,928
|
251,651
|
|
3,051,173
|
8,718,234
|
|
|
|
Property
and equipment, net (Note 4)
|
2,516,464
|
2,755,993
|
|
5,567,637
|
11,474,227
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Accounts
payable
|
2,427,969
|
2,643,437
|
Accrued
liabilities
|
932,017
|
353,147
|
Employee
costs payable
|
236,078
|
222,478
|
Convertible
debenture (Note 5)
|
1,506,555
|
1,790,358
|
Deferred
revenue (Note 3)
|
1,469,716
|
300,000
|
|
6,572,335
|
5,309,420
|
|
|
|
Deferred
revenue (Note 3)
|
-
|
2,062,500
|
|
6,572,335
|
7,371,920
|
|
|
|
Shareholders' equity (deficiency)
|
|
|
Capital
stock (Note 6)
|
|
|
Authorized
|
|
|
Unlimited
common shares without par value
|
|
|
Unlimited
preference shares
|
|
|
Issued
and outstanding
|
|
|
22,075,577
common shares
|
45,335,610
|
44,327,952
|
(November
30, 2018 - 18,252,243)
|
|
|
Additional
paid-in capital
|
44,293,457
|
45,110,873
|
Accumulated
other comprehensive income
|
284,421
|
284,421
|
Accumulated
deficit
|
(90,918,186)
|
(85,620,939)
|
|
(1,004,698)
|
4,102,307
|
|
|
|
|
5,567,637
|
11,474,227
|
Contingencies
(Note 11)
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of operations and
comprehensive loss
|
For the
three and six months ended May 31, 2019 and 2018
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Revenue
|
|
|
|
|
Licensing
(Note 3)
|
399,696
|
489,995
|
664,247
|
742,267
|
Up-front
fees (Note 3)
|
814,824
|
86,972
|
893,809
|
169,218
|
|
1,214,520
|
576,967
|
1,558,056
|
911,485
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
Cost
of goods sold
|
-
|
65,874
|
33,068
|
65,874
|
Gross Margin
|
1,214,520
|
511,093
|
1,524,988
|
845,611
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research
and development
|
1,655,039
|
2,195,200
|
3,787,300
|
4,459,328
|
Selling,
general and administrative
|
1,476,013
|
967,849
|
2,683,256
|
1,981,319
|
Depreciation
(Note 4)
|
126,776
|
153,844
|
252,060
|
302,026
|
|
3,257,828
|
3,316,893
|
6,722,616
|
6,742,673
|
|
|
|
|
|
Loss
from operations
|
(2,043,308)
|
(2,805,800)
|
(5,197,628)
|
(5,897,062)
|
Net
foreign exchange gain
|
24,961
|
7,675
|
13,629
|
7,700
|
Interest
income
|
843
|
7
|
854
|
14
|
Interest
expense
|
(55,294)
|
(61,158)
|
(114,102)
|
(119,516)
|
Net
loss and comprehensive loss
|
(2,072,798)
|
(2,859,276)
|
(5,297,247)
|
(6,008,864)
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
(0.10)
|
(0.07)
|
(0.26)
|
(0.16)
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
shares outstanding, basic and diluted
|
21,037,532
|
41,838,574
|
20,047,972
|
38,310,742
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
|
|
Condensed
unaudited interim consolidated statements of shareholders' equity
(deficiency)
|
For the
six months ended May 31, 2019 and 2018
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
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)
|
-
|
-
|
94,806
|
-
|
-
|
94,806
|
Proceeds
from issuance of shares and warrants (Note 6)
|
883,333
|
4,184,520
|
1,115,480
|
-
|
-
|
5,300,000
|
Cost
of warrants issued to placement agent (Note 9)
|
-
|
(141,284)
|
141,284
|
-
|
-
|
-
|
Share
issuance cost (Note 6)
|
-
|
(635,370)
|
(174,974)
|
-
|
-
|
(810,344)
|
Net
loss
|
-
|
-
|
-
|
-
|
(6,008,864)
|
(6,008,864)
|
Balance, May 31, 2018
|
4,353,784
|
38,697,900
|
37,869,548
|
284,421
|
(77,882,323)
|
(1,030,454)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
-
|
-
|
162,289
|
-
|
-
|
162,289
|
Proceeds
from exercise of 2018 Pre-Funded Warrants (Note 9)
|
3,823,334
|
1,007,658
|
(979,705)
|
-
|
-
|
27,953
|
Net
loss
|
-
|
-
|
-
|
-
|
(5,297,247)
|
(5,297,247)
|
Balance, May 31, 2019
|
22,075,577
|
45,335,610
|
44,293,457
|
284,421
|
(90,918,186)
|
(1,004,698)
|
|
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
|
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of cash
flows
|
For the
three and six months ended May 31, 2019 and 2018
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
May 31,
2019
May 31, 2018
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Net loss
|
(2,072,798)
|
(2,859,276)
|
(5,297,247)
|
(6,008,864)
|
Items
not affecting cash
|
|
|
|
|
Depreciation
(Note 4)
|
125,895
|
153,844
|
252,060
|
302,026
|
Stock-based
compensation (Note 7)
|
160,016
|
63,118
|
162,289
|
94,806
|
Deferred
share units (Note 8)
|
-
|
-
|
-
|
7,565
|
Accreted
interest (Note 5)
|
8,260
|
16,169
|
16,197
|
32,141
|
Unrealized
foreign exchange loss (gain)
|
885
|
(9,600)
|
883
|
3,517
|
|
|
|
|
|
Change
in non-cash operating assets & liabilities
|
|
|
|
|
Accounts
receivable
|
(79,846)
|
(326,492)
|
(55,761)
|
243,721
|
Investment
tax credits
|
(45,000)
|
(44,999)
|
(90,000)
|
(90,001)
|
Inventory
|
-
|
25,330
|
31,723
|
(69,851)
|
Prepaid
expenses, sundry and other assets
|
201,083
|
(58,628)
|
169,401
|
(233,368)
|
Accounts
payable, accrued liabilities and employee costs
payable
|
735,923
|
(429,822)
|
377,002
|
734,942
|
Deferred
revenue
|
(817,784)
|
(75,000)
|
(892,784)
|
(150,000)
|
Cash
flows used in operating activities
|
(1,783,366)
|
(3,545,356)
|
(5,326,237)
|
(5,133,366)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Repayment
of 2013 Debenture (Note 5)
|
-
|
-
|
(300,000)
|
-
|
Proceeds
from issuance of shares on exercise of 2018 Pre-Funded Warrants
(Note 9)
|
1,500
|
-
|
27,953
|
-
|
Proceed
from issuance of shares and warrants
|
-
|
5,300,000
|
-
|
5,300,000
|
Offering
costs
|
-
|
(618,689)
|
-
|
(618,689)
|
Cash
flows provided from (used in) financing activities
|
1,500
|
4,681,311
|
(272,047)
|
4,681,311
|
|
|
|
|
|
Investing activity
|
|
|
|
|
Purchase
of property and equipment (Note 4)
|
(9,624)
|
(45,507)
|
(13,414)
|
(84,332)
|
Cash
flows used in investing activities
|
(9,624)
|
(45,507)
|
(13,414)
|
(84,332)
|
|
|
|
|
|
Increase
(decrease) in cash
|
(1,791,490)
|
1,090,448
|
(5,611,698)
|
(536,387)
|
Cash,
beginning of period
|
2,821,669
|
270,226
|
6,641,877
|
1,897,061
|
Cash, end of period
|
1,030,179
|
1,360,674
|
1,030,179
|
1,360,674
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
Interest
paid
|
44,331
|
13,750
|
90,754
|
81,610
|
Taxes
paid
|
-
|
-
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accompanying notes to condensed unaudited interim consolidated
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Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
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 $2,072,798 and
$5,297,247 for the three and six months ended May 31, 2019 (three
and six months ended May 31, 2018 – loss of $2,859,276 and
$6,008,864), and has an accumulated deficit of $90,918,187 as at
May 31, 2019 (November 30, 2018 - $85,620,939). The Company has a
working capital deficiency of $3,521,162 as at May 31, 2019
(November 30, 2018 – working capital of $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, strategic
alliance agreements, and other relevant commercial
considerations.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
1.
Nature
of operations (continued)
Going concern (continued)
In addition, if the
Company raises additional funds by issuing equity securities, its
then existing security 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 does 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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
2.
Basis
of presentation (continued
(a)
Basis of consolidation (continued)
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 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.
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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(a)
Revenue recognition (continued)
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.
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.
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.
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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
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 and six months ended May 31, 2019, the
Company recognized $814,824 and $893,809 (three and six months
ended May 31, 2018 - $75,000 and $150,000) of revenue over the
remaining term of the Mallinckrodt agreement, which expires on
August 31, 2019.
As of May 31, 2019,
the Company has recorded a deferred revenue balance of $1,469,716
(November 30, 2018 - $2,362,500) relating to the underlying
contracts, of which $1,469,716 (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.
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 May 31, 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(e)
Convertible debentures (continued)
of the beneficial
conversion feature related to the 2018 Debenture was allocated to
shareholders’ equity.
On May 1, 2019, the
Company issued an unsecured convertible debenture in the principal
amount of $1,050,000, that 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 (the “2019 Debenture”). At
issuance, the conversion option was not characterized as an
embedded derivative as it did not meet the criteria of ASC topic
815 Derivatives and Hedging. Also, at issuance, as the conversion
price was higher than the market share price, conversion option was
not bifurcated from its host contract and the total value of the
convertible debenture was recognized as a liability.
(f)
Investment tax credits
The investment 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 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 and six months ended May 31,
2019.
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 and six months ended May 31, 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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(g)
Recently adopted accounting pronouncements
(continued)
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 and
six months ended May 31, 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
|
-
|
-
|
9,624
|
-
|
-
|
-
|
13,414
|
Balance
at May 31, 2019
|
554,876
|
156,059
|
172,498
|
5,377,269
|
1,441,452
|
276,300
|
76,458
|
8,054,912
|
|
|
|
|
|
|
|
|
|
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
|
28,446
|
3,117
|
4,201
|
169,323
|
41,418
|
6,201
|
237
|
252,943
|
Balance
at May 31, 2019
|
392,108
|
146,710
|
134,692
|
3,252,131
|
1,317,199
|
220,499
|
75,109
|
5,538,448
|
|
|
|
|
|
|
|
|
|
Net book value at:
|
|
|
|
|
|
|
|
|
November
30, 2018
|
187,424
|
12,466
|
42,007
|
2,284,837
|
165,671
|
62,002
|
1,586
|
2,755,993
|
May
31, 2019
|
162,768
|
9,349
|
37,806
|
2,125,138
|
124,253
|
55,801
|
1,349
|
2,516,464
|
As at May 31, 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 and six months ended May 31, 2019 and 2018, the
Company recorded depreciation expense within cost of goods sold in
the amount of $Nil and $883 (three and six months ended May 31,
2018 - $Nil and $Nil), respectively.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
Due
to related parties
Convertible
debenture
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
(“2019 Debenture”)
|
$1,050,000
|
-
|
Convertible
debenture payable to two directors and officers of the Company,
unsecured, 12% annual interest rate,
payable
monthly (“2013 Debenture”)
|
-
|
$1,350,000
|
Convertible
debenture payable to two directors and officers of
the Company,
unsecured, 10% annual interest rate,
payable monthly
(“2018 Debenture”)
|
$456,555
|
$$ 440,358
|
|
$1,506,555
|
$$ 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
Due
to related parties (continued)
Convertible debenture (continued)
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.
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%.
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that 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 2019
Debenture.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
Due
to related parties (continued)
Convertible debenture (continued)
Accreted interest
expense during the three and six months ended May 31, 2019 is
$8,260 and $16,197 (three and six months ended May 31, 2018 -
$16,169 and $32,141) 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, 2018 Debenture and 2019 Debenture (collectively, the
“Debentures”) for the three and six months ended May
31, 2019 is $44,331 and $90,754 (three and six months ended May 31,
2018 – $40,805 and $80,723) and has also been included in the
condensed unaudited interim consolidated statements of operations
and comprehensive loss.
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 May 31, 2019, the Company had 22,075,577 (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 May
31, 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
6(f) 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
6.
Capital
stock (continued)
Authorized, issued and outstanding (continued)
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.
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”)
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
6.
Capital
stock (continued)
Authorized, issued
and outstanding (continued)
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.
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 and six months
ended May 31, 2019, 150,000 and 2,793,334 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 May 31, 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
2,207,558 based on the number of issued and outstanding common
shares as at May 31, 2019. As at May 31, 2019, 2,132,707 options
are outstanding and there were 74,851 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 May 31, 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
May 31, 2019.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
In the three and
six months ended May 31, 2019, 1,687,000 (three and six months
ended May 31, 2018 – Nil) stock options were granted to
management and other employees and 200,000 (three and six months
ended May 31, 2018 – Nil) stock options were granted to
members of the Board of Directors.
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.
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.
The weighted
average fair value of employee stock options granted was estimated
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
93.90-111.93%
|
-
|
93.90-111.93%
|
-
|
Risk-free
interest rate
|
1.62-1.90%
|
-
|
1.62-1.90%
|
-
|
Expected
life (in years)
|
5.78 - 10.00
|
-
|
5.78 - 10.00
|
-
|
The
weighted average grant date
|
|
|
|
|
fair
value of options granted
|
0.22 - 0.28
|
-
|
0.22 - 0.28
|
-
|
Details
of stock option transactions in Canadian dollars (“C$”)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
$
|
$
|
#
|
$
|
$
|
Outstanding,
beginning of period
|
555,651
|
37.70
|
16.69
|
582,811
|
32.00
|
17.20
|
Granted
|
1,887,000
|
0.35
|
0.26
|
-
|
-
|
-
|
Expired
|
(31,550)
|
37.71
|
17.60
|
(15,828)
|
54.20
|
39.20
|
Forfeited
|
(2,000)
|
14.93
|
8.19
|
(5,667)
|
11.90
|
10.20
|
Balance
at
|
|
|
|
|
|
|
end
of period
|
2,409,101
|
8.41
|
3.77
|
561,317
|
31.50
|
16.60
|
|
|
|
|
|
|
|
Options
exercisable end of period
|
1,141,431
|
17.26
|
7.62
|
506,278
|
32.40
|
17.20
|
Total unrecognized
compensation cost relating to the unvested performance-based stock
options at May 31, 2019 is $Nil (May 31, 2018 -
$793,795).
For the three and
six months ended May 31, 2019 and 2018, no options were
exercised.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
The following table
summarizes the components of stock-based compensation
expense.
Stock-based
compensation
|
|
|
related
to:
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Research
and development
|
128,257
|
56,957
|
131,757
|
67,995
|
Selling,
general and administrative
|
31,759
|
6,162
|
30,532
|
26,811
|
|
160,016
|
63,119
|
162,289
|
94,806
|
The Company has
estimated its stock option forfeitures to be approximately 4% for
the three and six months ended May 31, 2019 (three and six months
ended May 31, 2018 – 4%).
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
and six months ended May 31, 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 May 31, 2019,
10,279 (May 31,
2018 – 10,279) DSUs are outstanding and 721 (May 31, 2018
– 721) DSUs are available for grant under the DSU Plan. The
Company recorded the following amounts related to DSUs for each of
the three and six months ended May 31, 2019 and three and six
months ended May 31, 2018 in additional paid in capital and accrued
the following amounts as at May 31, 2019 and May 31,
2018:
|
|
|
|
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
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 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 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 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 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 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
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
and six months ended May 31, 2019, 150,000 and 2,793,334 (three and
six months ended May 31, 2018 – Nil) 2018 Pre-Funded Warrants
were exercised for proceeds of $1,500 and $27,953 (three and six
months ended May 31, 2018 - $Nil), and the Company recorded a
charge of $979,705 (three and six months ended May 31, 2018 - $Nil)
from Additional paid-in-capital to common shares under Capital
stock. During the six months ended May 31, 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 May 31, 2019,
1,616,667 2018 Pre-Funded Warrants are outstanding which are
exercisable immediately at $0.01 per share. In addition, the
following table provides information on the 23,740,290 warrants
including 2018 Firm Warrants outstanding and exercisable as of May
31, 2019:
|
|
|
|
|
Warrant
|
|
|
Expiry
|
|
|
|
|
|
|
June
2016 Warrants
|
$19.30
|
277,478
|
June
02, 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
|
1,616,667
|
October
16, 2023
|
1,616,667
|
October
2018 Placement
|
|
|
|
|
Agent Warrants
|
$0.9375
|
1,160,314
|
October
16, 2023
|
1,160,314
|
|
|
23,740,290
|
|
23,601,551
|
During the three
and six months ended May 31, 2019, other than 2018 Pre-Funded
Warrants as noted above, there were no cash exercises in respect of
warrants (three and six months ended May 31, 2018 – Nil) and
no cashless exercise (three and six months ended May 31, 2018 -
Nil) of warrants, resulting in the issuance of Nil (three and six
months ended May 31, 2018 – Nil) and Nil (three and six
months ended May 31, 2018 - Nil) common shares,
respectively.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
Details of warrant
transactions are as follows:
|
Outstanding,
December 1, 2018
|
|
|
|
Outstanding,
May 31, 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
|
-
|
-
|
(2,793,334)
|
1,616,667
|
October
2018 Placement
|
|
|
|
|
|
Agent
Warrants
|
1,160,314
|
-
|
-
|
-
|
1,160,314
|
|
26,533,624
|
-
|
-
|
(2,793,334)
|
23,740,290
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 1,
2017
|
1,491,742
|
870,000
|
2,778,722
|
1,818,182
|
181,818
|
-
|
-
|
7,140,464
|
Issued
|
-
|
-
|
-
|
-
|
|
4,416,667
|
441,667
|
4,858,334
|
Expired
|
(1,491,742)
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,491,742)
|
Outstanding,
May 31,
2018
|
-
|
870,000
|
2,778,722
|
1,818,182
|
181,818
|
4,416,667
|
441,667
|
10,507,056
|
The Company has had
no taxable income under the Federal and Provincial tax laws of
Canada for the six months ended May 31, 2019 and May 31, 2018. The
Company has non-capital loss carry-forwards at May 31, 2019,
totaling $49,580,440 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 and
six months ended May 31, 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 and
six months ended May 31, 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.
From
time to time, the Company may be exposed to claims and legal
actions in the normal course of business. As at May 31, 2019, and
continuing as at July 10, 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 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
11.
Contingencies
(continued)
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 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 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. The
trial is scheduled for June 2020 in the case under 18-404. The
trial in the case under docket number 17-392 is scheduled for Nov.
12, 2019. The 30-month litigation stay is extended to March 2, 2020
per a court order.
On
April 24, 2019, an order was issued, setting the trial date for the
Company's ongoing Purdue litigation case, case number 17-392 in the
District of Delaware, with the trial is scheduled to begin on
November 12, 2019 and a decision is expected by March 2, 2020. The
30-month stay date is now March 2, 2020. The Company and its
management intend to continue to vigorously defend against these
claims and firmly believe that we do not infringe the subject
patents.
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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
11.
Contingencies
(continued)
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. In an order entered at the
parties request on May 9, 2019, the Court stayed proceedings in the
action to permit the parties' time to conduct a mediation. As
a result of a subsequent extension, the stay currently is in place
until August 12, 2019. There can be no assurance that the
mediation will result in an agreement to settle the action.
Unless a mutually satisfactory agreement can be reached 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 TSX during the Period
(“Motion”). On June 28, 2019, the Court endorsed a
timetable for the exchange of material leading to the hearing of
the Motion scheduled for January 27-28, 2020. 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.
12.
Financial
instruments
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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
12.
Financial
instruments (continued)
(a)
Fair values (continued)
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 and six months ended May 31, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Financial
Liabilities
|
|
|
|
|
Convertible debenture(i)
|
1,506,555
|
1,523,667
|
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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
12.
Financial
instruments (continued)
(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
|
361,673
|
305,912
|
Less
allowance for doubtful accounts
|
(66,849)
|
(66,849)
|
Total
accounts receivable, net
|
294,824
|
239,063
|
|
|
|
Not
past due
|
294,824
|
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
|
361,673
|
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
and six months ended May 31, 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.
(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.
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 May 31, 2019:
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
12.
Financial
instruments (continued)
(d)
Liquidity risk (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Third
parties
|
|
|
|
|
|
|
Accounts
payable
|
2,427,969
|
-
|
-
|
-
|
-
|
2,427,969
|
Accrued
liabilities
|
932,017
|
-
|
-
|
-
|
-
|
932,017
|
Related
parties
|
|
|
|
|
|
|
Employee
costs payable
|
236,078
|
-
|
-
|
-
|
-
|
236,078
|
Convertible
debenture (Note 5)
|
44,331
|
1,083,845
|
12,457
|
12,594
|
562,834
|
1,716,061
|
|
3,640,395
|
1,083,845
|
12,457
|
12,594
|
562,834
|
5,312,125
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Revenue
|
|
|
|
|
Canada
|
-
|
-
|
-
|
-
|
United
States
|
1,214,520
|
576,967
|
1,558,056
|
911,485
|
|
1,214,520
|
576,967
|
1,558,056
|
911,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
2018
|
|
|
|
$
|
$
|
Total
assets
|
|
|
|
|
Canada
|
|
|
5,567,637
|
11,474,227
|
|
|
|
|
|
Total
property and equipment
|
|
|
|
|
Canada
|
|
|
2,516,464
|
2,755,993
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
six months ended May 31, 2019 and 2018
(Stated in U.S.
dollars)
On July 8, 2019,
the Company announced that the Company has obtained an equity
financing commitment of up to $10,000,000 from Silverback Capital
Corporation, a private investment firm (“Silverback
Capital”). During the 36-month term of the equity financing
commitment, the Company may sell shares of its common stock to
Silverback Capital up to the $10,000,000 total commitment at a 25%
discount to the volume weighted average price of the
Company’s common stock for the 5 trading days prior to the
date the Company provides notice to Silverback Capital, or if the
maximum discount rate allowed by the Company’s principal
exchange is less than 25%, then the maximum discount rate allowed.
The Company will determine, in its sole discretion, the timing and
amount of any sales of its stock, subject to certain conditions.
Upon notice by the Company, Silverback Capital is required to
purchase the shares, subject to certain conditions, including, but
not limited to, that there is an effective U.S. registration
statement covering resale of the shares.
EXHIBIT
99.3
Intellipharmaceutics
Announces Second Quarter 2019 Results
Toronto, Ontario July 10, 2019 –
Intellipharmaceutics International
Inc. (OTCQB: IPCIF and TSX: IPCI)
(“Intellipharmaceutics” or the “Company”),
a pharmaceutical company specializing in the research, development
and manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs, today reported the
results of operations for the three and six months ended May 31,
2019. All dollar amounts referenced herein are in United States
dollars unless otherwise noted.
Corporate
Developments
●
On July 8, 2019, we
announced that the Company has obtained an equity financing
commitment of up to $10,000,000 from Silverback Capital
Corporation, a private investment firm (“Silverback
Capital”). During the 36-month term of the equity financing
commitment, we may sell shares of our common stock to Silverback
Capital up to the $10,000,000 total commitment at a 25% discount to
the volume weighted average price of the Company’s common
stock for the 5 trading days prior to the date the Company provides
notice to Silverback Capital, or if the maximum discount rate
allowed by the Company’s principal exchange is less than 25%,
then the maximum discount rate allowed. The Company will determine,
in its sole discretion, the timing and amount of any sales of its
stock, subject to certain conditions. Upon notice by the Company,
Silverback Capital is required to purchase the shares, subject to
certain conditions, including, but not limited to, that there is an
effective U.S. registration statement covering resale of the
shares. There can be no assurance that the equity financing
commitment from Silverback Capital can be completed as planned, or
at all.
●
On June 4, 2019,
the Company presented at the 9th annual LD Micro Invitational.
LD Micro
was founded in 2006 with the sole purpose of being an independent
resource in the microcap space and now hosts several events
annually.
●
On May 30, 2019, we
announced that the Company’s pre-existing license to conduct
activities with Cannabidiol (“CBD”) has been migrated
by Health Canada to a Cannabis Drug License (“CDL”)
under the Cannabis Regulations. Intellipharmaceutics’ new
Cannabis Drug License allows the Company to continue to possess
cannabis, produce a drug containing cannabis and sell a drug
containing cannabis. The CDL is unique from other forms of cannabis
licenses in Canada as, according to Health Canada, it is a
requirement for any company that intends to produce and sell a
prescription drug containing cannabis or cannabinoids. Only
companies, such as Intellipharmaceutics, with a Health Canada
issued Drug Establishment License are eligible to apply for a
Cannabis Drug License. There can be no assurance that we will be
able to develop cannabis-based products or that any cannabis-based
product candidates we develop will ever be successfully
commercialized or produce significant, or any, revenue for
us.
●
On May 29, 2019,
the Company held its Annual Meeting of its shareholders at which
the Company’s shareholders voted to ratify the reappointment
of MNP LLP, Chartered Professional Accountants (“MNP”),
as the auditor of the Company and to authorize the directors to fix
the auditor’s remuneration for MNP and voted to re-elect the
following members of the Company’s Board of Directors: Dr.
Isa Odidi, Dr. Amina Odidi, Bahadur Madhani, Kenneth Keirstead,
Norman Betts and Shawn Graham.
●
On May 10, 2019, we
announced that the Company
has received approval from the U.S. Food and Drug Administration
("FDA") for the Company's abbreviated new drug application ("ANDA")
for desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. The approved product is a generic equivalent of the
branded product Pristiq®. Desvenlafaxine extended-release
tablets are a serotonin and norepinephrine reuptake inhibitor
("SNRI") indicated for the treatment of major depressive disorder
("MDD"). There can be no assurance that the Company's
desvenlafaxine extended-release 50 mg, and 100 mg tablets will be
successfully commercialized and produce significant revenue for
us.
●
On April 24, 2019, an
order was issued, setting the trial date for the Company's ongoing
Purdue litigation case, case number 17-392 in the District of
Delaware, with the trial is scheduled to begin on November 12, 2019
and a decision is expected by March 2, 2020. The 30-month stay date
is now March 2, 2020. On April 4, 2019, the U.S. Federal Circuit
Court of Appeals affirmed the invalidity of one Purdue Oxycontin
formulation patent, subject to further appeal to the U.S. Supreme
Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
●
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.
●
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that will mature
on November 1, 2019, bears interest at a rate of 12% per annum and
is 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, are the holders of the 2019
Debenture.
●
In March 2019, we
announced that we had resubmitted, and, that the FDA acknowledged
receipt of our resubmission of the Oxycodone ER New Drug
Application (“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. However, there
can be no assurance that the Company 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 or that
the FDA will meet its deadline for review and ultimately approve
the NDA for the sale of Oxycodone ER in the U.S. market, or that it
will ever be successfully commercialized.
●
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 under the symbol “IPCIF”.
The Company is also listed on the Toronto Stock Exchange under the
symbol “IPCI” and the Company's non-compliance with
Nasdaq's bid price requirement does not impact the Company's
listing or trading status on that exchange.
●
On February 21,
2019, we and our CEO, Dr. Isa Odidi (the “Defendants”),
were served with a Statement of Claim filed in the Superior Court
of Justice of Ontario (the “Court”) for a proposed
class action under the Ontario Class Proceedings Act (the
“Action”). The Action was brought by Victor Romita, the
proposed representative plaintiff (the “Plaintiff”), on
behalf of a class of Canadian persons (the “Class”) who
traded shares of the Company during the period from February 29,
2016 to July 26, 2017 (the “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 (the
“Motion”). On June 28, 2019, the Court endorsed a
timetable for the exchange of material leading to the hearing of
the Motion scheduled for January 27-28, 2020. 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 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.
We also have a CDL from Health Canada.
Results
of Operations
The Company
recorded net loss for the three months ended May 31, 2019 of
approximately $2.1 million or $0.10 per common share, compared with
a net loss of approximately $2.9 million or $0.07 per common share
for the three months ended May 31, 2018. In the three months ended
May 31, 2019, the lower net loss is attributed to the lower
licensing revenues from commercial sales of generic Focalin
XR® and to a lesser extent, sales of generic Seroquel XR®
shipped to Mallinckrodt, combined with increased administrative
expense related to professional and legal fees and to the change in
contract term with Mallinckrodt which expires August 31, 2019
compared to the original ten year term. In the three months ended
May 31, 2018, the net loss was attributed to lower licensing
revenues from commercial sales of generic Focalin XR®,
combined with increased R&D expenses.
The Company
recorded revenues of approximately $1.2 million for the three
months ended May 31, 2019 versus approximately $0.6 million for the
three months ended May 31, 2018. Such revenues consisted primarily
of licensing revenues from commercial sales of the 15, 25, 30 and
35 mg strengths of our generic Focalin XR® under the Par
Pharmaceutical Inc. agreement, as amended. The higher increased
revenue for the three months ended May 31, 2019 is primarily due to
the change in contract term with Mallinckrodt which expires August
31, 2019 compared to the original ten year term. Beginning in early
2018, we began to see a significant impact from aggressive pricing
by competitors, resulting in a marked increase in gross-to-net
deductions such as wholesaler rebates, chargebacks and pricing
adjustments. While the gross-to-net deductions fluctuate on a
quarter over quarter basis, profit share payments for the last
quarter has been consistent over the same period in 2018.Revenues
from generic Seroquel XR® are still well below levels expected
at the launch of the product in 2017, primarily due to the
Company’s commercial partner entering the market later than
planned. Management is continuing to evaluate strategic options to
improve returns from this product, however there can be no
assurance that this can be completed as planned.
Expenditures for
R&D for the three months ended May 31, 2019 were lower by
approximately $0.5 million compared to the three months ended May
31, 2018. The decrease is primarily due to significantly lower
biostudies and patent litigation expenses partially offset by
higher third party consulting fees and options
expenses.
Selling, general
and administrative expenses were approximately $1.5 million for the
three months ended May 31, 2019 in comparison to approximately $1.0
million for the three months ended May 31, 2018. The increase is
due to higher expenses related to administrative costs, partially
offset by a decrease in wages and marketing cost.
The Company had
cash of approximately $1.0 million as at May 31, 2019 compared to
approximately $2.8 million as at February 28, 2019. The decrease in
cash was mainly due to the cash payments used in operating
activities and cash inflow provided by financing activities is
offset by cash flow used in investing activities. In fiscal 2019,
there is lower cash receipt relating to commercial sales by
Mallinckrodt.
As of May 31, 2019,
our cash balance was approximately $1.0 million. We currently
expect to satisfy our operating cash requirements into the third
quarter of 2019 from cash on hand and quarterly profit share
payments. The Company will need to obtain additional funding as we
further the development of our product candidates. Potential
sources of capital may include payments from licensing agreements,
cost savings associated with managing operating expense levels,
equity and/or debt financings and/or new strategic partnership
agreements which fund some or all costs of product development. We
intend to utilize the capital markets to bridge any funding
shortfall and to provide capital to continue to advance our most
promising product candidates. Our future operations are highly
dependent upon our ability to source additional capital to support
advancing our product pipeline through continued R&D activities
and to fund any significant expansion of our operations. Our
ultimate success will depend on whether our product candidates
receive the approval of the FDA or Health Canada and whether we are
able to successfully market approved products. We cannot be certain
that we will be able to receive FDA or Health Canada approval for
any of our current or future product candidates, that we will reach
the level of sales and revenues necessary to achieve and sustain
profitability, or that we can secure other capital sources on terms
or in amounts sufficient to meet our needs or at all.
There can be no assurance that we will enter into
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, 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.
About Intellipharmaceutics
Intellipharmaceutics
International Inc. is a pharmaceutical company specializing in the
research, development and manufacture of novel and generic
controlled-release and targeted-release oral solid dosage drugs.
The Company's patented Hypermatrix™ technology is a multidimensional
controlled-release drug delivery platform that can be applied to a
wide range of existing and new pharmaceuticals.
Intellipharmaceutics has developed several drug delivery systems
based on this technology platform, with a pipeline of products
(some of which have received FDA approval) in various stages of
development. The Company has ANDA and NDA 505(b)(2) drug product
candidates in its development pipeline. These include the
Company’s Oxycodone ER
based on its proprietary nPODDDS™ novel Point Of Divergence Drug
Delivery System (for which an NDA has been filed with the FDA), and
Regabatin™ XR (pregabalin
extended-release capsules).
Cautionary Statement Regarding Forward-Looking
Information
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”,
“goals” ,“set to”, “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, 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 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 ANDAs and NDAs, challenges in securing
final FDA approval for our product candidates, including our
oxycodone hydrochloride extended release tablets 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 the "Risk Factors"
section of our latest annual information form, our latest Form
20-F, and our latest Form F-1 and F-3 registration statements
(including any documents forming a part thereof or incorporated by
reference therein), as amended, as well as 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 and 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.
Trademarks used herein are the property of their respective
holders.
Unless the context otherwise
requires, all references (i) to "we," "us," "our,"
"Intellipharmaceutics," and the "Company" refer to
Intellipharmaceutics International Inc. and its subsidiaries and
(ii) in this document 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 split which became
effective on each of Nasdaq and TSX at the open of market on
September 14, 2018. The
common shares of the Company are currently traded on the OTCQB and
the TSX.
Nothing contained in this document should 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.
The condensed
unaudited interim consolidated financial statements, accompanying
notes to the condensed unaudited interim consolidated financial
statements, and Management Discussion and Analysis for the three
and six months ended May 31, 2019 will be accessible on
Intellipharmaceutics’ website at www.intellipharmaceutics.com
and will be available on SEDAR and EDGAR.
Summary
financial tables are provided below.
Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated balance sheets
|
|
|
As
at May 31, 2019 and November 30, 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
$
|
$
|
Assets
|
|
|
Current
|
|
|
Cash
|
1,030,179
|
6,641,877
|
Accounts
receivable, net
|
294,824
|
239,063
|
Investment
tax credits
|
1,088,849
|
998,849
|
Prepaid
expenses, sundry and other assets
|
417,393
|
586,794
|
Inventory
|
219,928
|
251,651
|
|
3,051,173
|
8,718,234
|
|
|
|
Property
and equipment, net
|
2,516,464
|
2,755,993
|
|
5,567,637
|
11,474,227
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Accounts
payable
|
2,427,969
|
2,643,437
|
Accrued
liabilities
|
932,017
|
353,147
|
Employee
costs payable
|
236,078
|
222,478
|
Convertible
debenture
|
1,506,555
|
1,790,358
|
Deferred
revenue
|
1,469,716
|
300,000
|
|
6,572,335
|
5,309,420
|
|
|
|
Deferred
revenue
|
-
|
2,062,500
|
|
6,572,335
|
7,371,920
|
|
|
|
Shareholders' equity (deficiency)
|
|
|
Capital
stock
|
|
|
Authorized
|
|
|
Unlimited
common shares without par value
|
|
|
Unlimited
preference shares
|
|
|
Issued
and outstanding
|
|
|
22,075,577
common shares
|
45,335,610
|
44,327,952
|
(November
30, 2018 - 18,252,243)
|
|
|
Additional
paid-in capital
|
44,293,457
|
45,110,873
|
Accumulated
other comprehensive income
|
284,421
|
284,421
|
Accumulated
deficit
|
(90,918,186)
|
(85,620,939)
|
|
(1,004,698)
|
4,102,307
|
|
|
|
|
5,567,637
|
11,474,227
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of operations and
comprehensive loss
|
For the
three and six months ended May 31, 2019 and
2018
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Revenue
|
|
|
|
|
Licensing
|
399,696
|
489,995
|
664,247
|
742,267
|
Up-front
fees
|
814,824
|
86,972
|
893,809
|
169,218
|
|
1,214,520
|
576,967
|
1,558,056
|
911,485
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
Cost
of goods sold
|
-
|
65,874
|
33,068
|
65,874
|
|
|
|
|
|
Gross Margin
|
1,214,520
|
511,093
|
1,524,988
|
845,611
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research
and development
|
1,655,039
|
2,195,200
|
3,787,300
|
4,459,328
|
Selling,
general and administrative
|
1,476,013
|
967,849
|
2,683,256
|
1,981,319
|
Depreciation
|
126,776
|
153,844
|
252,060
|
302,026
|
|
3,257,828
|
3,316,893
|
6,722,616
|
6,742,673
|
|
|
|
|
|
Loss
from operations
|
(2,043,308)
|
(2,805,800)
|
(5,197,628)
|
(5,897,062)
|
Net
foreign exchange gain
|
24,961
|
7,675
|
13,629
|
7,700
|
Interest
income
|
843
|
7
|
854
|
14
|
Interest
expense
|
(55,294)
|
(61,158)
|
(114,102)
|
(119,516)
|
Net
loss and comprehensive loss
|
(2,072,798)
|
(2,859,276)
|
(5,297,247)
|
(6,008,864)
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
(0.10)
|
(0.07)
|
(0.26)
|
(0.16)
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
shares outstanding, basic and diluted
|
21,037,532
|
41,838,574
|
20,047,972
|
38,310,742
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of cash
flows
|
For the
three and six months ended May 31, 2019 and
2018
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Net loss
|
(2,072,798)
|
(2,859,276)
|
(5,297,247)
|
(6,008,864)
|
Items
not affecting cash
|
|
|
|
|
Depreciation
|
125,895
|
153,844
|
252,060
|
302,026
|
Stock-based
compensation
|
160,016
|
63,118
|
162,289
|
94,806
|
Deferred
share units
|
-
|
-
|
-
|
7,565
|
Accreted
interest
|
8,260
|
16,169
|
16,197
|
32,141
|
Unrealized
foreign exchange loss (gain)
|
885
|
(9,600)
|
883
|
3,517
|
|
|
|
|
|
Change
in non-cash operating assets & liabilities
|
|
|
|
|
Accounts
receivable
|
(79,846)
|
(326,492)
|
(55,761)
|
243,721
|
Investment
tax credits
|
(45,000)
|
(44,999)
|
(90,000)
|
(90,001)
|
Inventory
|
-
|
25,330
|
31,723
|
(69,851)
|
Prepaid
expenses, sundry and other assets
|
201,083
|
(58,628)
|
169,401
|
(233,368)
|
Accounts
payable, accrued liabilities and employee costs
payable
|
735,923
|
(429,822)
|
377,002
|
734,942
|
Deferred
revenue
|
(817,784)
|
(75,000)
|
(892,784)
|
(150,000)
|
Cash
flows used in operating activities
|
(1,783,366)
|
(3,545,356)
|
(5,326,237)
|
(5,133,366)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Repayment
of 2013 Debenture
|
-
|
-
|
(300,000)
|
-
|
Proceeds
from issuance of shares on exercise of 2018 Pre-Funded
Warrants
|
1,500
|
-
|
27,953
|
-
|
Proceed
from issuance of shares and warrants
|
-
|
5,300,000
|
-
|
5,300,000
|
Offering
costs
|
-
|
(618,689)
|
-
|
(618,689)
|
Cash
flows provided from financing activities
|
1,500
|
4,681,311
|
(272,047)
|
4,681,311
|
|
|
|
|
|
Investing activity
|
|
|
|
|
Purchase
of property and equipment
|
(9,624)
|
(45,507)
|
(13,414)
|
(84,332)
|
Cash
flows used in investing activities
|
(9,624)
|
(45,507)
|
(13,414)
|
(84,332)
|
|
|
|
|
|
Increase
(decrease) in cash
|
(1,791,490)
|
1,090,448
|
(5,611,698)
|
(536,387)
|
Cash,
beginning of period
|
2,821,669
|
270,226
|
6,641,877
|
1,897,061
|
Cash, end of period
|
1,030,179
|
1,360,674
|
1,030,179
|
1,360,674
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
Interest
paid
|
44,331
|
13,750
|
90,754
|
81,610
|
Taxes
paid
|
-
|
-
|
-
|
-
|
CONTACT INFORMATION
Company
Contact:
Intellipharmaceutics
International Inc.
Greg
Powell
Chief Financial
Officer
416.798.3001 ext.
106
investors@intellipharmaceutics.com
Investor
Contact:
ProActive
Capital
Kirin
Smith
646.863.6519
ksmith@pcgadvisors.com
EXHIBIT
99.4
FORM 52-109F2
CERTIFICATION
OF INTERIM FILINGS
FULL
CERTIFICATE
I,
Dr. Isa Odidi, Chief Executive Officer, of Intellipharmaceutics
International Inc., certify the following
1.
Review: I have reviewed the interim financial statements
and interim MD&A (together, the "interim filings") of
Intellipharmaceutics International Inc. (the "issuer") for the
interim period ended May 31, 2019.
2.
No misrepresentations:
Based on my knowledge, having
exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having
exercised reasonable diligence, the interim financial statements
together with the other financial information included in the
interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the
interim filings.
4.
Responsibility:
The issuer's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109
Certification of
Disclosure in Issuers' Annual and Interim
Filings, for the
issuer.
5.
Design: Subject to the limitations, if any, described in
paragraphs 5.2 and 5.3, the issuer's other certifying officer and I
have, as at the end of the period covered by the interim
filings
(a)
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that
(i)
material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings
are being prepared; and
(ii)
information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP.
5.1
Control Framework:
The control framework the issuer's
other certifying officer and I used to design the issuer's ICFR is
the Committee of Sponsoring Organizations Internal Control
Framework.
5.2
ICFR –
material weakness relating to design: The
issuer has disclosed in its interim MD&A for each material
weakness relating to design existing at the end of the interim
period
(a)
a
description of the material weakness;
(b)
the
impact of the material weakness on the issuer’s financial
reporting and its ICFR; and
(c)
the
issuer’s current plans, if any, or any actions already
undertaken, for remediating the material weakness.
6.
Reporting changes in
ICFR: The issuer has disclosed
in its interim MD&A any change in the issuer's ICFR that
occurred during the period beginning on March 1, 2018 and ended on
May 31, 2019 that has materially affected, or is reasonably likely
to materially affect, the issuer's ICFR.
Date: July 10,
2019
/s/ Isa Odidi
Dr.
Isa Odidi
Chief
Executive Officer
EXHIBIT
99.5
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I,
Greg Powell, Chief Financial Officer, of Intellipharmaceutics
International Inc., certify the following
1.
Review: I have reviewed the interim financial statements
and interim MD&A (together, the "interim filings") of
Intellipharmaceutics International Inc. (the "issuer") for the
interim period ended May 31, 2019.
2.
No misrepresentations:
Based on my knowledge, having
exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having
exercised reasonable diligence, the interim financial statements
together with the other financial information included in the
interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the
interim filings.
4.
Responsibility:
The issuer's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109
Certification of
Disclosure in Issuers' Annual and Interim
Filings, for the
issuer.
5.
Design: Subject to the limitations, if any, described in
paragraphs 5.2 and 5.3, the issuer's other certifying officer and I
have, as at the end of the period covered by the interim
filings
(a)
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that
(i)
material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings
are being prepared; and
(ii)
information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP.
5.1
Control Framework:
The control framework the issuer's
other certifying officer and I used to design the issuer's ICFR is
the Committee of Sponsoring Organizations Internal Control
Framework.
5.2
ICFR –
material weakness relating to design: The
issuer has disclosed in its interim MD&A for each material
weakness relating to design existing at the end of the interim
period
(a)
a
description of the material weakness;
(b)
the
impact of the material weakness on the issuer’s financial
reporting and its ICFR; and
(c)
the
issuer’s current plans, if any, or any actions already
undertaken, for remediating the material weakness.
6.
Reporting changes in
ICFR: The issuer has disclosed
in its interim MD&A any change in the issuer's ICFR that
occurred during the period beginning on March 1, 2018 and ended on
May 31, 2019, that has materially affected, or is reasonably likely
to materially affect, the issuer's ICFR.
Date: July 10,
2019
/s/ Greg
Powell
Greg
Powell
Chief
Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2019.
Commission File Number: 000-53805
Intellipharmaceutics International Inc.
(Translation
of registrant's name into English)
30 WORCESTER ROAD TORONTO, ONTARIO M9W 5X2
(Address
of principal executive office)
Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F. Form 20-F [ x ]
Form 40-F [ ]
Indicate by check mark if the registrant is
submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the
submission in paper of a Form 6-K if submitted solely to provide an
attached annual report to security holders.
Indicate by check mark if the registrant is
submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the
submission in paper of a Form 6-K if submitted to furnish a report
or other document that the registrant foreign private issuer must
furnish and make public under the laws of the jurisdiction in which
the registrant is incorporated, domiciled or legally organized (the
registrant’s “home country”), or under the rules
of the home country exchange on which the registrant’s
securities are traded, as long as the report or other document is
not a press release, is not required to be and has not been
distributed to the registrant’s security holders, and, if
discussing a material event, has already been the subject of a Form
6-K submission or other Commission filing on
EDGAR.
This
Report of Foreign Private Issuer on Form 6-K and the attached
exhibits 99.1, 99.2 and 101 shall be incorporated by reference into
the Company’s effective Registration Statements on Form F-3,
as amended and supplemented (Registration Statement Nos. 333-172796
and 333-218297), filed with the Securities and Exchange Commission,
from the date on which this Report is filed, to the extent not
superseded by documents or reports subsequently filed or furnished
by Intellipharmaceutics International Inc. under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
EXHIBIT LIST
Exhibit
|
Description
|
99.1
|
Management
Discussion And Analysis Of Financial Condition And Results Of
Operations for the Three and Nine Months Ended August 31,
2019
|
99.2
|
Condensed
Unaudited Interim Consolidated Financial Statements and Notes to
Condensed Unaudited Interim Consolidated Financial Statements of
Intellipharmaceutics International Inc. for the Three and Nine
Months Ended August 31, 2019
|
99.3
|
News
Release dated October 11, 2019 - Intellipharmaceutics Announces
Third Quarter 2019 Results
|
99.4
|
Form
52-109F2 - Chief Executive Officer
|
99.5
|
Form
52-109F2 - Chief Financial Officer
|
|
|
Exhibit
Number
|
Description
|
101.INS
|
|
XBRL Instance
Document
|
101.SCH
|
|
XBRL Schema
Document
|
101.CAL
|
|
XBRL Calculation
Linkbase Document
|
101.DEF
|
|
XBRL Definition
Linkbase Document
|
101.LAB
|
|
XBRL Label Linkbase
Document
|
101.PRE
|
|
XBRL Presentation
Linkbase Document
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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Intellipharmaceutics
International Inc.
(Registrant)
/s/ Greg Powell
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Date:
October 11, 2019
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EXHIBIT
99.1
2019 Third
Quarter
Management
Discussion and Analysis
MANAGEMENT
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED AUGUST 31, 2019
The following
Management Discussion and Analysis (“MD&A”) should
be read in conjunction with the August 31, 2019 condensed unaudited
interim consolidated financial statements of Intellipharmaceutics
International Inc. The condensed unaudited interim consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“U.S. GAAP”), as outlined in the Financial
Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”). Our accounting policies
have the potential to have a significant impact on our condensed
unaudited interim consolidated financial statements, either due to
the significance of the financial statement item to which they
relate or because they require judgment and/or estimation due to
the uncertainty involved in measuring, at a specific point in time,
events which are continuous in nature. The information contained in
this document is current in all material respects as of October 11,
2019 unless otherwise noted.
Unless the context
otherwise requires, the terms “we”, “us”,
“our”, “Intellipharmaceutics”, and the
“Company” refer to Intellipharmaceutics International
Inc. and its subsidiaries. Any reference in this document to our
“products” includes a reference to our product
candidates and future products we may develop. Whenever we refer to
any of our current product candidates (including additional product
strengths of products we are currently marketing) and future
products we may develop, no assurances can be given that we, or any
of our strategic partners, will successfully commercialize or
complete the development of any of such product candidates or
future products under development or proposed for development, that
regulatory approvals will be granted for any such product candidate
or future product, or that any approved product will be produced in
commercial quantities or sold profitably, or at all.
Unless stated
otherwise, all references to “$” or “U.S.
Dollars” are to the lawful currency of the United States and
all references to “C$” are to the lawful currency of
Canada. We refer in this document to information regarding
potential markets for our products, product candidates and other
industry data. We believe that all such information has been
obtained from reliable sources that are customarily relied upon by
companies in our industry. However, we have not independently
verified any such information.
Intellipharmaceutics™,
Hypermatrix™, Drug Delivery Engine™,
IntelliFoam™, IntelliGITransporter™,
IntelliMatrix™, IntelliOsmotics™, IntelliPaste™,
IntelliPellets™, IntelliShuttle™, nPODDDS™,
PODRAS™ and Regabatin™ are our trademarks. These
trademarks are important to our business. Although we may have
omitted the “TM” trademark designation for such
trademarks in this document, all rights to such trademarks are
nevertheless reserved. Unless otherwise noted, other trademarks
used in this document are the property of their respective
holders.
Unless the context
otherwise requires, references in this document 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
split of our common shares (the “reverse split”) which
became effective on each of The NASDAQ Capital Market
(“Nasdaq”) and the Toronto Stock Exchange
(“TSX”) at the open of market on September 14, 2018. As
described below, the common shares of the Company are currently
traded on the OTCQB Venture Market (“OTCQB”) and the
TSX.
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 October 4, 2019
we announced that following the filing of a bankruptcy stay by
Purdue Pharma L.P., the Company’s ongoing litigation cases,
number 1:17-cv-00392-RGA and 1:18-cv-00404-RGA-SRF between Purdue
Pharma L.P. et al and Intellipharmaceutics, have been stayed and
the existing trial dates in both cases have been vacated by orders
issued in each case by the judge in the District of Delaware on
October 3, 2019. No new dates were given for reinstatement;
however, the parties are required to provide a further status
report to the judge in each case no later than December 15, 2019.
The previous 30-month stay date of March 2, 2020, remains unchanged
at this time, absent a further order of the judge. There can be no
assurance when the now-vacated dates will be reinstated. The
Company and its management intend to continue to vigorously defend
against the claims of patent infringement made by Purdue Pharma
L.P. in the above cases. However, there can be no assurance that
the above cases can be resolved in the Company's
favor.
●
On September 30,
2019, pursuant to an ANDA Sale Agreement (the “ANDA
Agreement”) we sold Levetiracetam extended-release tablets
500mg and 750 mg to the ANDA Repository, LLC (the
“Purchaser”) in exchange for a purchase price of $1.00
for the “Transferred ANDA”. “Transferred
ANDA” is defined as all of the assets relating to the ANDA
for Levetiracetam extended-release tablets 500mg and 750 mg.
Additionally, pursuant to the ANDA Agreement, we agreed to pay the
Purchaser an annual fee for each fiscal year, equal to 50% of the
difference between our FDA Program Fee tier based on the total
number of our approved ANDAs plus the Transferred ANDA. and our
Program Fee based on the total number of our approved ANDAs less
the Transferred ANDA. Further, under the ANDA Agreement, we have
the option to repurchase the Levetiracetam ANDA for a purchase
price of $1 .at any time according to the terms of the
agreement.
●
On September 5,
2019 we announced that the Company has entered into a license and
commercial supply agreement with Tris Pharma, Inc. ("Tris"), by
which the Company has granted Tris an exclusive license to market,
sell and distribute in the United States, Desvenlafaxine Succinate
ER in the 50 and 100 mg strengths (the "licensed products")
approved for sale in the U.S. market by the U.S. Food and Drug
Administration FDA.
●
On August 15, 2019
we announced that the Company has entered into a license and
commercial supply agreement with Tris, by which the Company has
granted Tris an exclusive license to market, sell and distribute in
the United States, Quetiapine ER in the 50, 150, 200, 300 and 400
mg strengths (the "licensed products") approved for sale in the US
market by the FDA.
●
On July 24, 2019 we
announced that the Company has been advised by the FDA that the FDA
“is postponing product-specific advisory committee meetings
for opioid analgesics,” including the one previously
scheduled to discuss the Company’s NDA, “while it
continues to consider a number of scientific and policy issues
relating to this class of drugs.” According to the FDA, the
reason for the postponement is not unique to our Product and the
Anesthetic and Analgesic Drug products Advisory Committee
(“AADPAC”) meeting earlier planned by the FDA, to
discuss our NDA will be rescheduled at a future date. The FDA
informed the Company that it would continue to review the
Company’s NDA according to the existing Prescription Drug
User Fee Act (“PDUFA”) timeline, but noted that, due to
the postponement of the AADPAC meeting, it is possible that the FDA
may be unable to meet the PDUFA goal date of August 28, 2019. The
FDA did not meet the goal date of August 28, 2019, and the Company
is awaiting to hear back from the FDA for an Advisory Committee
meeting date and a new PDUFA goal date.
●
On July 8, 2019 we
announced that the Company has obtained an equity financing
commitment of up to $10,000,000 from Silverback Capital
Corporation, a private investment firm (“Silverback
Capital”). During the 36-month term of the equity financing
commitment, we may sell shares of its common stock to Silverback
Capital up to the $10,000,000 total commitment at a 25% discount to
the volume weighted average price of the Company’s common
stock for the five trading days prior to the date the Company
provides notice to Silverback Capital, or if the maximum discount
rate allowed by the Company’s principal exchange is less than
25%, the maximum discount rate allowed. The Company will determine,
in its sole discretion, the timing and amount of any sales of its
stock, subject to certain conditions. Upon notice by the Company,
Silverback Capital is required to purchase the shares, subject to
certain conditions, including, but not limited to, that there is an
effective U.S. registration statement covering resale of the
shares. There can be no assurance that the equity financing
commitment from Silverback Capital can be completed as planned, or
at all.
●
On June 4,
2019, the Company presented at the 9th annual LD Micro
Invitational. LD Micro was founded in
2006 with the sole purpose of being an independent resource in the
microcap space and now hosts several influential events
annually.
●
On May 30, 2019 we
announced that the Company’s pre-existing license to conduct
activities with Cannabidiol (“CBD”) has been migrated
by Health Canada to a Cannabis Drug License (“CDL”)
under the Cannabis Regulations. Our new Cannabis Drug License
allows the Company to continue to possess cannabis, produce a drug
containing cannabis and sell a drug containing cannabis. The CDL is
unique from other forms of cannabis licenses in Canada as,
according to Health Canada, it is a requirement for any company
that intends to produce and sell a prescription drug containing
cannabis or cannabinoids. Only companies, such as ours, with a
Health Canada issued Drug Establishment License are eligible to
apply for a Cannabis Drug License. There can be no assurance that
we will be able to develop cannabis-based products or that any
cannabis-based product candidates we develop will ever be
successfully commercialized or produce significant, or any, revenue
for us.
●
The Company held
its Annual Meeting of its shareholders at which the Company’s
shareholders voted to ratify the reappointment of MNP LLP,
Chartered Professional Accountants (“MNP”), as the
auditor of the Company and to authorize the directors to fix the
auditor’s remuneration for MNP and re-electing the following
members of the Company’s Board of Directors Dr. Isa Odidi,
Dr. Amina Odidi, Bahadur Madhani, Kenneth Keirstead, Norman Betts
and Shawn Graham.
●
On May 10, 2019 we
announced that the Company
has received approval from the FDA for the Company's ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. The approved product is a generic equivalent of the
branded product Pristiq®. Desvenlafaxine extended-release
tablets are a serotonin and norepinephrine reuptake inhibitor
("SNRI") indicated for the treatment of major depressive disorder
("MDD"). There can be no assurance that the Company's
desvenlafaxine extended-release 50 mg, and 100 mg tablets will be
successfully commercialized and produce significant revenue for
us.
●
On April 24, 2019,
an order was issued, setting the trial date for the Company's
ongoing Purdue litigation case, case number 17-392 in the District
of Delaware, with the trial scheduled to begin on November 12, 2019
and a decision is expected by March 2, 2020. The 30-month stay date
is now March 2, 2020. On April 4, 2019, the U.S. Federal Circuit
Court of Appeals affirmed the invalidity of one Purdue Oxycontin
formulation patent, subject to further appeal to the U.S. Supreme
Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
●
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 was released from certain obligations under
the license and commercial supply agreement as of April 12, 2019.
Effective August 15, 2019 the Mallinckrodt agreement was
terminated.
●
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that 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, are the holders of the 2019
Debenture.
●
In March 2019, we
announced that we had resubmitted, and, 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
PDUFA goal date of August 28, 2019 A previously scheduled Advisory
Committee meeting in respect of the NDA was postponed by the FDA.
The FDA did not meet the goal date of August 28, 2019, and the
Company is awaiting to hear back from the FDA for an Advisory
Committee meeting date and a new PDUFA goal dateHowever, there can
be no assurance that the Company 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 or that the
FDA will meet its deadline for review and ultimately approve the
NDA for the sale of Oxycodone ER in the U.S. market, or that it
will ever be successfully commercialized.
●
As more fully
described below (under the heading “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. The Company is also listed on the Toronto Stock
Exchange and the Company's non-compliance with Nasdaq's bid price
requirement does not impact the Company's listing or trading status
on that exchange.
●
On February 21,
2019, we and our CEO, Dr. Isa Odidi (the “Defendants”),
were served with a Statement of Claim filed in the Superior Court
of Justice of Ontario (the “Court”) for a proposed
class action under the Ontario Class Proceedings Act (the
“Action”). The Action was brought by Victor Romita, the
proposed representative plaintiff (the “Plaintiff”), on
behalf of a class of Canadian persons (the “Class”) who
traded shares of the Company during the period from February 29,
2016 to July 26, 2017 (the “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 January 2019, we
announced that we had commenced a research and development
(“R&D”) program of pharmaceutical 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.
We also have a CDL from Health Canada.
There
can be no assurance that the products licensed under the Tris
Pharma agreement. 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, 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 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. On September 30, 2019, pursuant to an ANDA Sale
Agreement (the “ANDA Agreement”) we sold Levetiracetam
extended-release tablets 500mg and 750 mg to ANDA Repository, LLC
(the “Purchaser”) in exchange for a purchase price of
$1.00 for the Transferred ANDA “Transferred ANDA” is
defined as all of the assets relating to the ANDA for Levetiracetam
extended-release tablets 500mg and 750 mg. Additionally pursuant to
the ANDA Agreement, we agreed to pay the Purchaser an annual fee
for each fiscal year, equal to 50% of the difference between our
FDA Program Fee tier based on the total number of our approved
ANDAs plus the Transferred ANDA. and our Program Fee based on the
total number of our approved ANDAs less the Transferred ANDA.
Further, under the ANDA Agreement, we have the option to repurchase
the Levetiracetam ANDA for a purchase price of $1 at any time
according to the terms of the agreement.
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
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 was released
from certain obligations under the license and commercial supply
agreement as of April 12, 2019. Effective August 15, 2019 the
Mallinckrodt agreement was terminated.
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 then marketing and
distribution partner Mallinckrodt, and Mallinckrodt launched all
strengths in June 2017. The Mallinckrodt agreement was terminated
effective August 15, 2019. On August 15, 2019 we announced a
license and commercial supply agreement with Tris Pharma, Inc.
("Tris"), granting Tris the exclusive license to market, sell and
distribute all strengths of the product in the United
States.
In May 2019, we
received 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 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. The Mallinckrodt agreement was terminated effective August
15, 2019. On September 5, 2019, we announced an agreement with
Tris, granting Tris an exclusive license to market, sell and
distribute the product in the United States.
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 RegabatinTM. 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. 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 PODRASTM delivery technology
platform was designed to prevent an 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
HypermatrixTM
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.
nPODDDSTM
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.
PODRASTM
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 PODRASTM 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
|
|
Indication
|
Stage
of Development(1)`
|
Regulatory
Pathway
|
Market
Size (in millions)(2)
|
Rights(3)
|
Dexmethylphenidate
hydrochloride extended-
release capsules
|
|
Attention deficit
hyperactivity
disorder
|
Received final
approval for 5,
10,15, 20, 25, 30,
35 and 40 mg
strengths from
FDA(4)
|
ANDA
|
$873
|
Intellipharmaceutics
and Par
(US)
Philippines rights
subject to
licensing and
distribution
agreement
|
Levetiracetam extended-
release tablets
|
|
Partial onset
seizures for
epilepsy
|
Received final
approval for the
500 and 750 mg
strengths from
FDA
|
ANDA
|
$135
|
ANDA Repository,
LLC7
|
Venlafaxine hydrochloride
extended-release capsules
|
|
Depression
|
Received final
approval for
37.5, 75 and 150 mg
strengths
from
FDA
|
ANDA
|
$820
|
Intellipharmaceutics
|
Pantoprazole sodium delayed-
release tablets
|
|
Conditions
associated with
gastroesophageal
reflux disease
|
ANDA application
for
commercialization
approval for
2 strengths under
review by
FDA
|
ANDA
|
$380
|
Intellipharmaceutics
|
Metformin hydrochloride
extended-release tablets
|
|
Management of type
2 diabetes
|
Received final
approval for 500
and 750 mg
strengths from FDA
|
ANDA
|
$210
(500 and 750 mg
only)
|
Intellipharmaceutics
Philippines and
Vietnamese
rights
subject to licensing and
distribution
agreements
|
Quetiapine fumarate
extended-release tablets
|
|
Schizophrenia,
bipolar disorder
& major
depressive disorder
|
Received final FDA
approval
for all 5
strengths. ANDS under
review by Health
Canada
|
ANDA
|
$132
|
Intellipharmaceutics
And Tris Pharma
(US)5(5)
Philippines,
Malaysian and
Vietnamese rights
subject to
licensing and
distribution agreements
|
Lamotrigine extended-
release tablets
|
|
Anti-convulsant for
epilepsy
|
ANDA application
for
commercialization
approval for
6 strengths under
review by
FDA
|
ANDA
|
$520
|
Intellipharmaceutics
|
Desvenlafaxine extended-
release tablets
|
|
Depression
|
Received approval
for the 50
and 100 mg
strengths from FDA
|
ANDA
|
$276
|
Intellipharmaceutics
and Tris Pharma
(US)5(5)
|
Trazodone hydrochloride
extended-release tablets
|
|
Depression
|
ANDA application
for
commercialization
approval for
2 strengths under
review by
FDA
|
ANDA
|
N/A(6)
|
Intellipharmaceutics
|
Carvedilol phosphate
extended- release capsules
|
|
Heart failure,
hypertension
|
Late-stage
development
|
ANDA
|
$54
|
Intellipharmaceutics
|
Oxycodone hydrochloride
controlled-release capsules
|
|
Pain
|
NDA application
accepted
February 2017 and
under review
by FDA
|
NDA
505(b)(2)
|
$1,282
|
Intellipharmaceutics
Philippines rights
subject to
licensing and
distribution
agreement
|
Pregabalin extended-
release capsules
|
N/A
|
Neuropathic
pain
|
IND application
submitted in
August
2015
|
NDA
505(b)(2)
|
$5,104
|
Intellipharmaceutics
|
Ranolazine extended-
release tablets
|
|
Chronic
angina
|
ANDA application
for
commercialization
approval for
2 strengths under
review by
FDA
|
ANDA
|
$820
|
Intellipharmaceutics
|
Oxycodone
hydrochloride
immediate release
tablets
(IPCI006)
|
N/A
|
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
August 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 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. Effective August 15, 2019
the Mallinckrodt agreement was terminated. On September 5,
2019 we announced a license and commercial supply agreement with
Tris, granting Tris an exclusive license to market, sell and
distribute in the United States, Desvenlafaxine Succinate ER in the
50 and 100 mg strengths approved for sale in the U.S. market by the
FDA. And on August 15, 2019 we announced another license and
commercial supply agreement with Tris, granting Tris an exclusive
license to market, sell and distribute in the United States,
Quetiapine ER in the 50, 150, 200, 300 and 400 mg strengths, also
approved for sale in the US market by the FDA.
(6)
Trazodone
Hydrochloride extended-release tablets are not currently being
marketed in the United States.
(7)
As at September 30,
2019, pursuant to an ANDA Sale Agreement (the “ANDA
Agreement”) we sold Levetiracetam extended-release tablets
500mg and 750 mg to the ANDA Repository, LLC (the
“Purchaser”) in exchange for a purchase price of $1.00
for the “Transferred ANDA”. “Transferred
ANDA” is defined as all of the assets relating to the ANDA
for Levetiracetam extended-release tablets 500mg and 750 mg. Under
the ANDA Agreement, we have the option to repurchase the
Levetiracetam ANDA for a purchase price of $1 at any time according
to the terms of the agreement.
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.
On September 30,
2019, pursuant to an ANDA Sale Agreement (the “ANDA
Agreement”) we sold Levetiracetam extended-release tablets
500mg and 750 mg to the ANDA Repository, LLC (the
“Purchaser”) in exchange for a purchase price of $1.00
for the “Transferred ANDA”. “Transferred
ANDA” is defined as all of the assets relating to the ANDA
for Levetiracetam extended-release tablets 500mg and 750 mg.
Additionally pursuant to the ANDA Agreement, we agreed to pay the
Purchaser an annual fee for each fiscal year, equal to 50% of the
difference between our FDA Program Fee tier based on the total
number of our approved ANDAs plus the Transferred ANDA and our
Program Fee based on the total number of our approved ANDAs less
the Transferred ANDA. Further, under the ANDA Agreement, we have
the option to repurchase the Levetiracetam ANDA for a purchase
price of $1 .at any time according to the terms of the
agreement.
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. Seroquel XR®, and the drug
active quetiapine fumarate, are indicated for use in the management
of schizophrenia, bipolar disorder and major depressive disorder
(MDD). 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 then 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.
Effective August 15, 2019 the Mallinckrodt agreement was
terminated. On August 15, 2019 we announced a license and
commercial supply agreement with Tris Pharma, granting Tris an
exclusive license to market, sell and distribute all strengths of
the product in the United States.
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 May 2019, we
received 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. Pristiq®, and the drug active desvenlafaxine
succinate, are indicated for use in the management of depression.
There can be no assurance that our desvenlafaxine extended-release
tablets in the 50 and 100 mg strengths 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. 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 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. Effective August 15, 2019 the
Mallinckrodt agreement was terminated. On September 5, 2019, we
announced a license and commercial supply agreement with Tris
Pharma, granting Tris an exclusive license to market, sell and
distribute the two strengths of the product in the United
States.
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
(AUCt)
and on the measure of area under the curve infinity
(AUCinf).
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, AUC0-t and
AUC0-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 were 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.
An order was issued
on April 24, 2019 setting the trial date for the Company's ongoing
Purdue litigation case, case number 17-392 in the District of
Delaware, with the trial is scheduled to begin on November 12, 2019
and a decision is expected by March 2, 2020. The 30-month stay date
is now March 2, 2020. On April 4, 2019, the U.S. Federal Circuit
Court of Appeals affirmed the invalidity of one Purdue Oxycontin
formulation patent, subject to further appeal to the U.S. Supreme
Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
On October 4, 2019
we announced that following the filing of a bankruptcy stay by
Purdue Pharma L.P., the Company’s ongoing litigation cases,
number 1:17-cv-00392-RGA and 1:18-cv-00404-RGA-SRF between Purdue
Pharma L.P. et al and Intellipharmaceutics, have been stayed and
the existing trial dates in both cases have been vacated by orders
issued in each case by the judge in the District of Delaware on
October 3, 2019. No new dates were given for reinstatement;
however, the parties are required to provide a further status
report to the judge in each case no later than December 15, 2019.
The previous 30-month stay date of March 2, 2020, remains unchanged
at this time, absent a further order of the judge.
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 we 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 we 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 for the oral route
commenced in June 2018. The clinical part of both studies was
completed, and the results included in the NDA
resubmission.
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.
On July 24, 2019 we
announced that the Company has been advised by the FDA that the FDA
“is postponing product-specific advisory committee meetings
for opioid analgesics,” including the one previously
scheduled to discuss our NDA, “while it continues to consider
a number of scientific and policy issues relating to this class of
drugs.” According to the FDA, the reason for the postponement
is not unique to our product and the Anesthetic and Analgesic Drug
Products Advisory Committee (“AADPAC”) meeting earlier
planned by the FDA, to discuss our NDA will be rescheduled at a
future date. The FDA informed the Company that it would continue to
review the Company’s NDA according to the existing PDUFA
timeline, but noted that, due to the postponement of the AADPAC
meeting, it is possible that the FDA may be unable to meet the
PDUFA goal date of August 28, 2019 the FDA did not meet the goal
date of August 28, 2019, and the Company is awaiting to hear back
from the FDA for anAdvisory Committee meeting date and a new PDUFA
goal date.
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 of our
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 RegabatinTM 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 an 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. On May 30, 2019 we announced that the
Company’s pre-existing license to conduct activities with CBD
has been migrated by Health Canada to a CDL under the Cannabis
Regulations. Our new Cannabis Drug License allows the Company to
continue to possess cannabis, produce a drug containing cannabis
and sell a drug containing cannabis. The CDL is unique from other
forms of cannabis licenses in Canada as, according to Health
Canada, it is a requirement for any company that intends to produce
and sell a prescription drug containing cannabis or cannabinoids.
Only companies, such as our Company, with a Health Canada issued
Drug Establishment License are eligible to apply for a Cannabis
Drug License. There can be no assurance that we will be able to
develop cannabis-based products or that any cannabis-based product
candidates we develop will ever be successfully commercialized or
produce significant revenue for us.
SELECTED
FINANCIAL INFORMATION
|
For the three months ended
|
For the nine months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Revenue:
|
1,689,941
|
413,555
|
3,247,997
|
1,325,040
|
Expenses:
|
3,050,254
|
4,271,888
|
9,772,870
|
11,014,561
|
Net
loss from operations
|
(1,454,325)
|
(3,954,104)
|
(6,751,572)
|
(9,962,968)
|
Net
loss per common share
|
|
|
|
|
Basic and diluted
|
(0.07)
|
(0.91)
|
(0.32)
|
(2.49)
|
|
As at
|
|
|
|
August
31,
|
November
30,
|
|
|
|
2019
|
2018
|
|
|
|
(unaudited)
|
(audited)
|
|
|
|
$
|
$
|
|
|
Cash
|
54,359
|
6,641,877
|
|
|
Total
assets
|
4,162,674
|
11,474,227
|
|
|
|
|
|
|
|
Convertible
debentures
|
1,525,220
|
1,790,358
|
|
|
Total
liabilities
|
6,570,295
|
7,371,920
|
|
|
Shareholders'
equity
|
(2,407,621)
|
4,102,307
|
|
|
Total
liabilities and shareholders' equity
|
4,162,674
|
11,474,227
|
|
|
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We have identified
the following accounting policies that we believe require
application of management’s most significant judgments, often
requiring the need to make estimates about the effect of matters
that are inherently uncertain and may change in subsequent
periods.
Disclosure
regarding our ability to continue as a going concern is included in
Note 1 to our condensed unaudited interim consolidated financial
statements for the three and nine months ended August 31,
2019.
Use
of Estimates
The preparation of
the condensed unaudited interim 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.
Revenue
recognition
The Company
accounts for revenue in accordance with the provisions of ASC 606
“Revenue from Contracts with Customers” (“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. 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 pursuant to 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.
The Company also
had a license and commercial supply agreement with Mallinckrodt
which provided 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 was 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 recorded revenue once Mallinckrodt obtains control of
the product and the performance obligation is satisfied. 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 was released from
certain obligations under the agreement as of April 12, 2019.
Effective August 15, 2019 the Mallinckrodt agreement was
terminated.
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 R&D 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 R&D 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 agreement, and initially
recorded it as deferred revenue, as it did not meet the criteria
for recognition.
For the three and
nine months ended August 31, 2019, the Company recognized
$1,469,716 and $2,363,525 (three and nine months ended August 31,
2018 - $75,000 and $225,000) of revenue based on a straight-line
basis over the remaining term of the Mallinckrodt agreement which
expired on August 31, 2019. As of August 31, 2019, the Company has
recorded a deferred revenue balance of $Nil (November 30, 2018 -
$2,362,500) relating to the underlying contracts due to termination
of our license and commercial supply agreement with Mallinckrodt
LLC. Effective August 15, 2019 the Mallinckrodt agreement was
terminated.
Research
and development costs
R&D 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.
Inventory
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 August 31, 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.
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.
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.
On May 1, 2019, the
Company issued an unsecured convertible debenture in the principal
amount of $1,050,000, that 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 (the “2019 Debenture”). At
issuance, the conversion option was not characterized as an
embedded derivative as it did not meet the criteria of ASC topic
815 Derivatives and Hedging. Also, at issuance, as the conversion
price was higher than the market share price, conversion option was
not bifurcated from its host contract and the total value of the
convertible debenture was recognized as a liability.
On August 26, 2019,
the Company issued an unsecured convertible debenture in the
principal amount of $140,800 (the “August 2019
Debenture”). At issuance, the conversion option was
bifurcated from its host contract and the fair value of the
conversion option was characterized as a derivative upon issuance
as it met the criteria of ASC Topic 815 Derivatives and Hedging.
Subsequent changes in the fair value of the derivative were
recorded in the consolidated statements of operations and
comprehensive loss. The proceeds received from the August 2019
Debenture less the initial amount allocated to the derivative were
allocated to the host debt liability and were accreted over the
life of the August 2019 Debenture using the effective rate of
interest.
Investment
tax credits
The investment 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.
Recently
adopted accounting pronouncements
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 and nine months ended August 31,
2019.
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 (i) the classification and
measurement of investments in equity securities and (ii) 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 and nine months ended August 31, 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 (i) public business entities for reporting periods for which
financial statements have not yet been issued and (ii) 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.
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.
RESULTS
OF OPERATIONS
Our results of
operations have fluctuated significantly from period to period in
the past and are likely to do so in the future. We anticipate that
our quarterly and annual results of operations will be impacted for
the foreseeable future by several factors, including the timing of
approvals to market our product candidates in various jurisdictions
and any resulting licensing revenue, milestone revenue, product
sales, the number of competitive products and the extent of any
aggressive pricing activity, wholesaler buying patterns, the timing
and amount of payments received pursuant to our current and future
collaborations with third parties, the existence of any
first-to-file exclusivity periods, and the progress and timing of
expenditures related to our research, development and
commercialization efforts. Due to these fluctuations, we presently
believe that the period-to-period comparisons of our operating
results are not a reliable indication of our future
performance.
The following are
selected financial data for the three and nine months ended August
31, 2019 and 2018.
|
For the three
months ended
|
|
|
For the nine
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
%
|
$
|
$
|
$
|
%
|
Revenue:
|
|
|
|
|
|
|
|
|
Licensing
|
217,265
|
320,330
|
(103,065)
|
-32%
|
881,512
|
1,062,597
|
(181,085)
|
-17.04%
|
Up-front fees
|
1,472,676
|
93,225
|
1,379,451
|
1480%
|
2,366,485
|
262,443
|
2,104,042
|
801.71%
|
|
1,689,941
|
413,555
|
|
|
3,247,997
|
1,325,040
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
-
|
45,299
|
(45,299)
|
-100%
|
33,068
|
111,173
|
(78,105)
|
-70.26%
|
|
1,689,941
|
368,256
|
1,321,685
|
359%
|
3,214,929
|
1,213,867
|
2,001,062
|
164.85%
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
1,625,353
|
3,324,221
|
(1,698,868)
|
-51%
|
5,412,653
|
7,783,549
|
(2,370,896)
|
-30.46%
|
Selling, general and administrative
|
1,298,029
|
792,379
|
505,650
|
64%
|
3,981,285
|
2,773,698
|
1,207,587
|
43.54%
|
Depreciation
|
126,872
|
155,288
|
(28,416)
|
-18%
|
378,932
|
457,314
|
(78,382)
|
-17.14%
|
|
3,050,254
|
4,271,888
|
(1,221,634)
|
-29%
|
9,772,870
|
11,014,561
|
(1,241,691)
|
-11.27%
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
(1,360,313)
|
(3,903,632)
|
2,543,319
|
-65%
|
(6,557,941)
|
(9,800,694)
|
3,242,753
|
-33.09%
|
Net
foreign exchange (loss) gain
|
(23,767)
|
9,406
|
(33,173)
|
-353%
|
(10,138)
|
17,106
|
(27,244)
|
-159.27%
|
Interest
income
|
11
|
8
|
3
|
38%
|
865
|
22
|
843
|
3831.82%
|
Interest
expense
|
(55,720)
|
(59,886)
|
4,166
|
-7%
|
(169,822)
|
(179,402)
|
9,580
|
-5.34%
|
Financing
cost
|
(14,536)
|
-
|
(14,536)
|
-
|
(14,536)
|
-
|
(14,536)
|
-
|
Net
loss for the period
|
(1,454,325)
|
(3,954,104)
|
2,499,779
|
-63%
|
(6,751,572)
|
(9,962,968)
|
3,211,396
|
-32.23%
|
Three months ended August 31, 2019 compared to the three months
ended August 31, 2018
Revenue
The Company
recorded revenues of $1,689,941 for the three months ended August
31, 2019 versus $413,555 for the three months ended August 31,
2018. Such revenues consisted primarily of licensing revenues from
commercial sales of the 15, 30 and 40 mg strengths of our generic
Focalin XR® under the Par agreement. The higher increased
revenue for the three months ended August 31, 2019 is primarily due
to the change in contract term with Mallinckrodt that expired on
August 31, 2019 compared to the original ten-year term. Beginning
in early 2018, we began to see a significant impact from aggressive
pricing by competitors, resulting in a marked increase in
gross-to-net deductions such as wholesaler rebates, chargebacks and
pricing adjustments. While the gross-to-net deductions fluctuate on
a quarter over quarter basis, profit share payments for the last
quarter has been consistent over the same period in
2018.
We entered into a
license and commercial supply agreement with Tris granting Tris an
exclusive license to market, sell and distribute in the United
States, Desvenlafaxine Succinate ER in the 50 and 100 mg strengths
and Quetiapine ER in the 50, 150, 200, 300 and 400 mg strengths,
approved for sale in the US market by the FDA.
Cost of goods sold
The Company
recorded cost of goods sold of $Nil for the three months ended
August 31, 2019 versus $45,299 for the three months ended August
31, 2018. Cost of sales reflects the Company’s manufacturing
shipments of generic Seroquel XR® to
Mallinckrodt.
Research and Development
Expenditures for
R&D for the three months ended August 31, 2019 were lower by
$1,698,868 compared to the three months ended August 31, 2018. The
decrease is primarily due to significantly lower Biostudies and
patent litigation expenses partially offset by higher third-party
consulting fees.
In the three months
ended August 31, 2019, we recorded $40,517 of expenses for
stock-based compensation for R&D employees compared to $11,072
for the three months ended August 31, 2018.
After adjusting for
the stock-based compensation expenses discussed above, expenditures
for R&D for the three months ended August 31, 2019 were lower
by $1,728,313 compared to the three months ended August 31, 2018.
The decrease was mainly due to the decrease in Biostudies and
patent and litigation expenses and was partially offset by higher
third-party consulting fees.
Selling, General and Administrative
Selling, general
and administrative expenses were $1,298,029 for the three months
ended August 31, 2019 in comparison to $792,379 for the three
months ended August 31, 2018, resulting in an increase of $505,650.
The increase is due to higher expenses related to administrative
costs and marketing cost, partially offset by a decrease in wages
and benefits.
Administrative
costs for the three months ended August 31, 2019 were $928,210 in
comparison to $433,967 in the three months ended August 31, 2018.
The increase for the three months ended August 31, 2019 was due to
the increase in professional and legal fees.
Expenditures for
wages and benefits for the three months ended August 31, 2019 were
$220,607 in comparison to $248,587 in the three months ended August
31, 2018. For the three months ended August 31, 2019, we recorded
an expense of $10,885 against expense for stock-based compensation
compared to an expense of $14,470 for the three months ended August
31, 2018. After adjusting for the stock-based compensation
expenses, expenditures for wages for the three months ended August
31, 2019 were lower by $24,395 compared to the three months ended
August 31, 2018.
Marketing costs for
the three months ended August 31, 2019 were $109,955 in comparison
to $80,220 in the three months ended August 31, 2018. This increase
is primarily the result of an increase in travel expenditures
related to business development and investor relations
activities.
Occupancy costs for
the three months ended August 31, 2019 were $39,257 in comparison
to $29,605 for the three months ended August 31, 2018. The increase
is due to higher property tax expenses.
Depreciation
Depreciation
expenses for the three months ended August 31, 2019 were $126,872
in comparison to $155,288 in the three months ended August 31,
2018. The decrease is primarily due to less investment in
production, laboratory and computer equipment during the year ended
November 30, 2018 and three months ended August 31,
2019.
Foreign Exchange Gain
Foreign exchange
loss was $23,767 for the three months ended August 31, 2019 in
comparison to a gain of $9,406 in the three months ended August 31,
2018. The foreign exchange loss for the three months ended August
31, 2019 was due to the weakening of the U.S dollar against the
Canadian dollar during the three months ended August 31, 2019 as
the exchange rates changed to $1.00 for C$1.3295 as at August 31,
2019 from $1.00 for C$1.3527 as at May 31, 2019. The foreign
exchange gain for the three months ended August 31, 2018 was due to
the strengthening of the U.S. dollar against the Canadian dollar
during the three months ended August 31, 2018 as the exchange rates
changed to $1.00 for C$1.3055 as at August 31, 2018 from $1.00 for
C$1.2948 as at May 31, 2018.
Interest Expense
Interest expense
for the three months ended August 31, 2019 was $55,720 in
comparison to $59,886 in the three months ended August 31, 2018.
This is primarily due to interest paid in 2019 on the 2013
Debenture, which accrues interest payable at 12% annually and
interest paid on the 2018 Debenture, which accrues interest payable
at 10% annually and the related conversion option embedded
derivative accreted at an annual effective interest rate of
approximately 7.27%, in comparison to the three months ended August
31, 2018 the interest expense was related to the interest paid on
the 2013 Debenture which accrues interest payable at 12% annually
and the related conversion option embedded derivative accreted at
an annual effective interest rate of approximately
4.9%.
Financing cost
Financing cost for
the three months ended August 31, 2019 was $14,536 in comparison to
Nil in the three months ended August 31, 2018. The increase is the
cost of borrowing for convertible debt issuance on August 26,
2019.
Net Loss
The Company
recorded net loss for the three months ended August 31, 2019 of
$1,454,325 or $0.07 per common share, compared with a net loss of
$3,954,104 or $0.91 per common share for the three months ended
August 31, 2018. In the three months ended August 31, 2019, the
lower net loss is attributed to the higher recognition of
Mallinckrodt upfront fees due to the change in contract term with
Mallinckrodt which expired August 31, 2019 compared to the original
ten-year term and to a greater extent, sales of generic Seroquel
XR® shipped to Mallinckrodt, combined with increased
administrative expense related to professional and legal fees and
decreased R&D expenses. In the three months ended August 31,
2018, the net loss was attributed to lower recognition of
Mallinckrodt upfront fees combined with increased R&D
expenses.
Nine months ended August 31, 2019 compared to the nine months ended
August 31, 2018
Revenue
The Company
recorded revenues of $3,247,997 for the nine months ended August
31, 2019 versus $1,325,040 for the nine months ended August 31,
2018. Such revenues consisted primarily of licensing revenues from
commercial sales of the 15, 25, 30 and 40 mg strengths of our
generic Focalin XR® under the Par agreement. The increase in
revenues in the nine months ended August 31, 2019 compared to the
nine months ended August 31, 2018 is primarily due to more revenue
recognition from the Mallinckrodt upfront fee in the second and
third quarter of year 2019 due to change in contract term with
Mallinckrodt which expired August 31, 2019 compared to the original
ten-year term. Beginning in early 2018, we began to see a
significant impact from aggressive pricing by competitors,
resulting in a marked increase in gross-to-net deductions such as
wholesaler rebates, chargebacks and pricing adjustments. While the
gross-to-net deductions fluctuate on a quarter over quarter basis,
profit share payments for the last quarter has been consistent over
the same period in 2018.
We entered into a
license and commercial supply agreement with Tris granting Tris an
exclusive license to market, sell and distribute in the United
States, Desvenlafaxine Succinate ER in the 50 and 100 mg strengths
and Quetiapine ER in the 50, 150, 200, 300 and 400 mg strengths,
approved for sale in the US market by the FDA. These licensed
products have not produced sales for the Company for the nine
months ended on August 31, 2019.
Cost of goods sold
The Company
recorded cost of goods sold of $33,068 for the nine months ended
August 31, 2019 versus $111,173 for the nine months ended August
31, 2018. Cost of sales reflects the Company’s manufacturing
shipments of generic Seroquel XR® to
Mallinckrodt.
Research and Development
Expenditures for
R&D for the nine months ended August 31, 2019 were lower by
$2,370,896 compared to the nine months ended August 31, 2018. The
decrease is primarily due to significantly lower patent litigation
expenses and Biostudies expenses partially offset by higher
third-party consulting fees and salaries expenses.
In the nine months
ended August 31, 2019, we recorded $172,274 of expenses for
stock-based compensation for R&D employees compared to $79,067
for the nine months ended August 31, 2018.
After adjusting for
the stock-based compensation expenses discussed above, expenditures
for R&D for the nine months ended August 31, 2019 were lower by
$2,464,103 compared to the nine months ended August 31, 2018. The
decrease was mainly due to the decrease in Biostudies and patent
and litigation expenses and was partially offset by higher
third-party consulting fees and salaries expenses.
Selling, General and Administrative
Selling, general
and administrative expenses were $3,981,285 for the nine months
ended August 31, 2019 in comparison to $2,773,698 for the nine
months ended August 31, 2018, resulting in an increase of
$1,207,587. The increase is due to higher expenses related to
administrative costs, partially offset by a decrease in wages and
marketing cost.
Administrative
costs for the nine months ended August 31, 2019 were $2,888,685 in
comparison to $1,476,609 in the nine months ended August 31, 2018.
The increase for the nine months ended August 31, 2019 was due to
the increase in professional and legal fees.
Expenditures for
wages and benefits for the nine months ended August 31, 2019 were
$699,616 in comparison to $878,454 in the nine months ended August
31, 2018. For the nine months ended August 31, 2019, we recorded an
expense of $41,417 against expense for stock-based compensation
compared to an expense of $41,281 for the six months ended August
31, 2018. After adjusting for the stock-based compensation
expenses, expenditures for wages for the nine months ended August
31, 2019 were lower by $178,974 compared to the nine months ended
August 31, 2018.
Marketing costs for
the nine months ended August 31, 2019 were $285,881 in comparison
to $318,853 in the nine months ended August 31, 2018. This decrease
is primarily the result of a decrease in travel expenditures
related to business development and investor relations
activities.
Occupancy costs for
the nine months ended August 31, 2019 were $107,103 in comparison
to $99,782 for the nine months ended August 31, 2018. The increase
is due to higher property tax expenses.
Depreciation
Depreciation
expenses for the nine months ended August 31, 2019 were $378,932 in
comparison to $457,314 in the nine months ended August 31, 2018.
The decrease is primarily due to less investment in production,
laboratory and computer equipment during the nine months ended
August 31, 2019.
Foreign Exchange Gain
Foreign exchange
loss was $10,138 for the nine months ended August 31, 2019 in
comparison to a gain of $17,106 in the nine months ended August 31,
2018. The foreign exchange loss for the nine months ended August
31, 2019 was due to the weakening of the U.S. dollar against the
Canadian dollar during the nine months ended August 31, 2019 as the
exchange rates changed to $1.00 for C$1.3295 as at August 31, 2019
from $1.00 for C$1.3301 as at November 30, 2018. The foreign
exchange gain for the nine months ended August 31, 2018 was due to
the strengthening of the U.S. dollar against the Canadian dollar
during the nine months ended August 31, 2018 as the exchange rates
changed to $1.00 for C$1.3055 as at August 31, 2018 from $1.00 for
C$1.2888 as at November 30, 2017.
Interest Expense
Interest expense
for the nine months ended August 31, 2019 was $169,822 in
comparison to $179,402 in the nine months ended August 31, 2018.
This is primarily due to interest paid in 2019 on the 2013
Debenture, which accrues interest payable at 12% annually and
interest paid on the 2018 Debenture, which accrues interest payable
at 10% annually and the related conversion option embedded
derivative accreted at an annual effective interest rate of
approximately 7.27%, in comparison to the nine months ended August
31, 2018 the interest expense was related to the interest paid on
the 2013 Debenture which accrues interest payable at 12% annually
and the related conversion option embedded derivative accreted at
an annual effective interest rate of approximately
4.9%.
Financing cost
Financing cost for
the nine months ended August 31, 2019 was $14,536 in comparison to
Nil in the nine months ended August 31, 2018. The increase is the
cost of borrowing for convertible debt issuance on August 26,
2019.
Net Loss
The Company
recorded net loss for the nine months ended August 31, 2019 of
$6,751,572 or $0.32 per common share, compared with a net loss of
$9,962,968 or $2.49 per common share for the nine months ended
August 31, 2018. In the nine months ended August 31, 2019, the net
loss is attributed to the higher recognition of Mallinckrodt
upfront fees due to the change in contract term with Mallinckrodt
which expired August 31, 2019 compared to the original ten-year
term, higher licensing revenues from commercial sales of generic
Focalin XR® and to a greater extent, sales of generic Seroquel
XR® shipped to Mallinckrodt, combined with increased
administrative expense related to professional and legal fees. In
the nine months ended August 31, 2018, the higher net loss was
attributed to lower recognition of Mallinckrodt upfront fees
combined with increased R&D expenses.
SUMMARY
OF QUARTERLY RESULTS
The table below
outlines selected financial data for the eight most recent
quarters. The quarterly results are unaudited and have been
prepared in accordance with U.S. GAAP, for interim financial
information.
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
August
31, 2019
|
1,689,941
|
(1,454,325)
|
(0.07)
|
(0.07)
|
May
31, 2019
|
1,214,520
|
(2,072,798)
|
(0.10)
|
(0.10)
|
February
28, 2019
|
343,536
|
(3,224,449)
|
(0.16)
|
(0.16)
|
November
30, 2018
|
387,691
|
(3,784,512)
|
(0.67)
|
(0.67)
|
August
31, 2018
|
413,555
|
(3,954,104)
|
(0.91)
|
(0.91)
|
May
31, 2018
|
576,967
|
(2,859,276)
|
(0.68)
|
(0.68)
|
February
28, 2018
|
334,518
|
(3,149,588)
|
(0.91)
|
(0.91)
|
November
30, 2017
|
1,077,835
|
(2,510,936)
|
(0.76)
|
(0.76)
|
(i) Quarterly per
share amounts may not sum due to rounding
It is important to
note that historical patterns of revenue and expenditures cannot be
taken as an indication of future revenue and expenditures. Net loss
has been somewhat variable over the last eight quarters and is
reflective of varying levels of commercial sales of generic Focalin
XR® capsules, the level of our R&D spending, and the
vesting or modification of performance-based stock options. The
lower net loss in the third quarter of 2019 is primarily attributed
to recognition of upfront revenue due to the cancellation of
Mallinckrodt agreement and lower R&D spending offset by higher
selling, general and administrative expenses. The lower net loss in
the first quarter of 2019 is primarily attributed to lower R&D
spending offset by higher selling, general and administrative
expenses and licensing revenues. The lower net loss in the fourth
quarter of 2018 is primarily attributed to lower R&D spending
and selling, general and administrative expenses offset by
licensing revenues. The higher net loss in the third quarter of
2018 is primarily attributed to higher third-party R&D expenses
as a result of clinical trials for Oxycodone ER, as well as
increased patent litigation expenses. The lower net loss in the
second quarter of 2018 is primarily attributed to slightly higher
licensing revenues and lower R&D spending. The net loss in the
first quarter of 2018 is primarily attributed to lower licensing
revenues from commercial sales of generic Focalin XR®, along
with higher R&D expenses. The lower net loss in the fourth
quarter of 2017 is primarily attributed to higher licensing
revenues and lower R&D spending and selling, general and
administrative expenses. The net loss in the third quarter of 2017
was primarily due to higher licensing revenue, partially offset by
higher expenses related to the FDA Advisory Committees meeting in
July 2017. The lower net loss in the second quarter of 2017 was
primarily attributed to higher than normal licensing revenues from
commercial sales of generic Focalin XR® in the 25 and 35 mg
strengths complementing the 15 and 30 mg strengths of our generic
Focalin XR® marketed by
Par, partially offset by an increase in performance-based options
expense and higher third-party consulting fees.
LIQUIDITY
AND CAPITAL RESOURCES
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
$
|
$
|
$
|
%
|
$
|
$
|
$
|
%
|
Cash
flows used in operating activities
|
(1,090,134)
|
(1,287,928)
|
197,794
|
-15%
|
(6,416,374)
|
(6,421,294)
|
4,920
|
0%
|
Cash
flows provided from financing activities
|
125,000
|
-
|
125,000
|
-
|
(147,047)
|
4,681,311
|
(4,828,358)
|
-103%
|
Cash
flows used in investing activities
|
(10,684)
|
(15,358)
|
4,674
|
-30%
|
(24,097)
|
(99,690)
|
75,593
|
-76%
|
Decrease
in cash
|
(975,818)
|
(1,303,286)
|
327,468
|
-25%
|
(6,587,518)
|
(1,839,673)
|
(4,747,845)
|
258%
|
Cash,
beginning of period
|
1,030,177
|
1,360,674
|
(330,497)
|
-24%
|
6,641,877
|
1,897,061
|
4,744,816
|
250%
|
Cash,
end of period
|
54,359
|
57,388
|
(3,029)
|
-5%
|
54,359
|
57,388
|
(3,029)
|
-5%
|
The Company had
cash of $54,359 as at August 31, 2019 compared to $1,030,179 as at
May 31, 2019. The decrease in cash was mainly due to expenditures
for R&D and selling, general, and administrative expenses which
are partially offset by receipt from Par and cash inflow provided
from financing activities. The decrease in cash during the three
months ended August 31, 2019 was mainly a result of our ongoing
expenditures in R&D and selling, general, and administrative
expenses, which included increased legal fees.
In November 2013,
the Company entered into an equity distribution agreement with
Roth, pursuant to which the Company originally could sell up to a
certain number of common shares through at-the-market issuances on
Nasdaq or otherwise. 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 below) 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.
For the three
months ended August 31, 2019, net cash flows used in operating
activities decreased to $1,090,134 as compared to net cash flows
used in operating activities for the three months ended August 31,
2018 of $1,287,928. The decrease was primarily a result of the
lower loss from operations, increase in accounts payable offset by
a decrease in accounts receivable, as well as a decrease in prepaid
expenses.
R&D costs,
which are a significant portion of the cash flows used in operating
activities, related to continued internal R&D programs are
expensed as incurred. However, equipment and supplies are
capitalized and amortized over their useful lives if they have
alternative future uses. For the three and nine months ended August
31, 2019, R&D expense was $1,625,353 and $5,412,653,
respectively compared to the three and nine months ended August 31,
2018 which was $3,324,221 and $7,783,549. The decrease was mainly
due to the decrease in Biostudies and patent and litigation
expenses and offset by higher third-party consulting fees and
employees’ salaries.
For the three and
nine months ended August 31, 2019, net cash flows provided in
financing activities were $125,000 and a decrease of $147,047,
compared to $Nil and $4,681,311 respectively for the three and nine
months ended August 31, 2018. Net cash flows from financing
activities in the three and nine months ended August 31, 2019
related to the issuance of a private placement financing of the
unsecured August 2019 Debenture (as defined above) in the principal
amount of $140,800. The August 2019 Debenture will mature on August
26, 2020, bear interest at a rate of 8% per annum, payable monthly,
is pre-payable at any time at the option of the Company and is
convertible at the option of the holder into common shares after
180 days at a conversion price which is equal to 75% of the market
price. Market price is the average of the lowest three (3) trading
prices for the common shares during the twenty (20) trading day
period prior to the conversion date. Net cash flows from financing
activities in the three and nine months ended August 31, 2019,
related to the issuance of 2,793,334
common shares on exercise of 2018 Pre-Funded Warrants issued as
part of the October 2018 financing for gross proceeds of $27,953
offset by the principal
repayment of $300,000 made on the 2013 Debenture. In October
2018, we 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
warrant (the “2018 Unit Warrants”) exercisable at $0.75
per share. We 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 over-allotment option exercised in part by the
underwriter. The price for 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, we 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. We also
issued 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 (the “October 2018
Placement Agent Warrants”). 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.
For the three and
nine months ended August 31, 2019, net cash flows used in investing
activities of $10,684 and $24,097 related mainly to the purchase of
lab and computer equipment. For the three and nine months ended
August 31, 2018 net cash flows used in investing activities of
$15,358 and $99,690 related primarily to purchase of plant and
production equipment.
All non-cash items
have been added back or deducted from the condensed unaudited
interim consolidated statements of cash flows.
With the exception
of the quarter ended February 28, 2014, the Company has incurred
losses from operations since inception. To date, the Company has
funded its R&D activities principally through the issuance of
securities, loans from related parties, funds from the IPC
Arrangement Agreement and funds received under commercial license
agreements. Since November 2013, research has also been funded from
revenues earned on sales of our generic Focalin XR® capsules
for the 15 and 30 mg strengths. Despite the launch of the 25 and 35
mg strengths by Par in January 2017, the launch of the 10 and 20 mg
strengths in May 2017 along with the launch of the 5 and 40 mg
strengths in November 2017, we expect sales of generic Focalin
XR®, due to continued competitive pressures, to be negatively
impacted for the next several quarters. As of November 30, 2018,
the Company had a cash balance of $6.6 million. As of August 31,
2019, our cash balance was $54,359. We currently expect to satisfy
our operating cash requirements from cash on hand and quarterly
profit share payments supplemented by proceeds from equity
issuances as necessary. The Company may need to obtain additional
funding prior to that time as we further the development of our
product candidates. Potential sources of capital may include
payments from licensing agreements, cost savings associated with
managing operating expense levels, equity and/or debt financings
and/or new strategic partnership agreements which fund some or all
costs of product development. We intend to utilize the capital
markets to bridge any funding shortfall and to provide capital to
continue to advance our most promising product candidates. Our
future operations are highly dependent upon our ability to source
additional capital to support advancing our product pipeline
through continued R&D activities and to fund any significant
expansion of our operations. Our ultimate success will depend on
whether our product candidates receive the approval of the FDA or
Health Canada and whether we are able to successfully market
approved products. We cannot be certain that we will be able to
receive FDA or Health Canada approval for any of our current or
future product candidates, that we will reach the level of sales
and revenues necessary to achieve and sustain profitability, or
that we can secure other capital sources on terms or in amounts
sufficient to meet our needs or at all. Our cash requirements for
R&D during any period depend on the number and extent of the
R&D activities we focus on. At present, we are working
principally on our Oxycodone ER 505(b)(2), PODRASTM technology,
additional 505(b)(2) product candidates for development in various
indication areas and selected generic product candidate development
projects. Our development of Oxycodone ER will require significant
expenditures, including costs to defend against the Purdue
litigation. For our RegabatinTM
XR 505(b)(2) product candidate, Phase III clinical trials can be
capital intensive, and will only be undertaken consistent with the
availability of funds and a prudent cash management
strategy.
Effective October
1, 2018, the maturity date for the 2013 Debenture was extended to
April 1, 2019. Effective April 1, 2019, the maturity date for the
2013 Debenture was further extended to May 1, 2019. In December 2018, a principal repayment of
$300,000 was made on the 2013 Debenture. 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 was refinanced by the New Debenture. On
May 1, 2019, the 2019 Debenture was issued with a principal amount
of $1,050,000, that 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, are the holders
of the 2019 Debenture.
On August 26, 2019,
the Company completed a private placement financing of the
unsecured August 2019 Debenture (as defined above) in the principal
amount of $140,800. The August 2019 Debenture will mature on August
26, 2020. The 2019 Debenture bears interest at a rate of 8% per
annum, payable monthly, is pre-payable at any time at the option of
the Company and is convertible at the option of the holder into
common shares after 180 days at a conversion price which is equal
to 75% of the market price. Market price is the average of the
lowest three (3) trading prices for the common shares during the
twenty (20) trading day period prior to the conversion
date.
The availability of
equity or debt financing will be affected by, among other things,
the results of our R&D, our ability to obtain regulatory
approvals, our success in commercializing approved products with
our commercial partners and the market acceptance of our 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 we raise
additional funds by issuing equity securities, our then existing
security holders will likely experience dilution, and the incurring
of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financial covenants
that would restrict our operations. In the event that we do not
obtain sufficient additional capital, it will raise substantial
doubt about our ability to continue as a going concern, realize our
assets and pay our liabilities as they become due. Our cash
outflows are expected to consist primarily of internal and external
R&D, legal and consulting expenditures to advance our product
pipeline and selling, general and administrative expenses to
support our commercialization efforts. Depending upon the results
of our R&D programs, the impact of the litigation against us
and the availability of financial resources, we could decide to
accelerate, terminate, or reduce certain projects, or commence new
ones. Any failure on our part to successfully commercialize
approved products or raise additional funds on terms favorable to
us or at all, may require us to significantly change or curtail our
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 us not taking advantage of business
opportunities, in the termination or delay of clinical trials or us
not taking any necessary actions required by the FDA or Health
Canada for one or more of our product candidates, in curtailment of
our product development programs designed to identify new product
candidates, in the sale or assignment of rights to our
technologies, products or product candidates, and/or our inability
to file ANDAs, ANDSs or NDAs at all or in time to competitively
market our products or product candidates.
OUTSTANDING
SHARE INFORMATION
As at August 31,
2019, the Company had 22,085,856 common shares issued and
outstanding, which is an increase of 3,833,613 when compared to
November 30, 2018. The number of shares outstanding increased as a
result of the issuance of 2,793,334 common shares upon exercise of
the same number of 2018 Pre-Funded Warrants and the issuance of
1,030,000 common shares in connection with the exercise of the same
number of 2018 Pre-Funded Warrants as of November 30, 2018 but for
which common shares were not yet issued as of November 30, 2018 and
the issuance of 10,279 common shares due to the exercise of
deferred share units. The number of options outstanding as of
August 31, 2019 is 2,404,435, an increase of 1,848,784 from
November 30, 2018.The increase is due to the issuance of 1,687,000
stock options to management and other employees and 200,000 stock
options to members of the Board of Directors offset by forfeiture
of 6,666 options and expiry of 31,550 during the nine months ended
August 31, 2019. The warrants outstanding as of August 31, 2019
represent 23,601,551 common shares issuable upon the exercise of
23,740,290 outstanding warrants, which represents a decrease of
2,793,334 common shares (2,793,334 warrants) from November 30,
2018, due to the exercise of 2,793,334 Pre-Funded Warrants to
purchase 2,793,334 common shares during the nine months ended
August 31, 2019. During the three and nine months ended August 31,
2019, 10, 279 deferred share units were exercised ad converted into
common shares. The number of deferred share units outstanding as of
August 31, 2019 is Nil. As of October 11, 2019, the number of
shares outstanding is 22,085,856.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT LIQUIDITY AND MARKET
RISK
Liquidity risk is
the risk that we will encounter difficulty raising liquid funds to
meet our commitments as they fall due. In meeting our liquidity
requirements, we closely monitor our forecasted cash requirements
with expected cash drawdown.
We are exposed to
interest rate risk, which is affected by changes in the general
level of interest rates. Due to the fact that our cash is
deposited with major financial institutions in an interest savings
account, we do 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 given their relative short-term
nature.
Trade accounts
receivable potentially subjects us to credit risk. We provide an
allowance for doubtful accounts equal to the estimated losses
expected to be incurred in the collection of accounts
receivable.
We are also exposed
to credit risk at period end from the carrying value of our cash.
We manage this risk by maintaining bank accounts with a Canadian
Chartered Bank. Our cash is not subject to any external
restrictions.
We are exposed to
changes in foreign exchange rates between the Canadian and U.S.
Dollar which could affect the value of our cash. We had no foreign
currency hedges or other derivative financial instruments as of
August 31, 2019. We did not enter into financial instruments for
trading or speculative purposes and we do not currently utilize
derivative financial instruments.
We have 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 us versus the
U.S. Dollar would affect our loss and other comprehensive loss by
$0.1 million.
WORKING
CAPITAL
Working capital
(defined as current assets minus current liabilities) has decreased
by approximately $8.2 million at August 31, 2019 from November 30,
2018, mainly as a result of an increase in accrued liabilities and
accounts payable, offset by decreases in cash, prepaid expenses,
deferred revenue and convertible debentures. We are actively
exploring partnership opportunities for both currently approved and
yet-to-be-approved products, as well as potential international
partnership opportunities for both existing and future products.
While the Company has some flexibility with its level of
expenditures, our future operations are highly dependent upon our
ability to source additional capital to support advancing our
product pipeline through continued R&D activities and to fund
any significant expansion of our operations. Our ultimate success
will depend on whether our product candidates receive the approval
of the FDA, Health Canada, and the regulatory authorities of other
countries in which are products are proposed to be sold and whether
we are able to successfully market our approved products. We cannot
be certain that we will receive FDA, Health Canada, or such other
and other regulatory approval for any of our current or future
product candidates, that we will reach the level of sales and
revenues necessary to achieve and sustain profitability, or that we
can secure other capital sources on terms or in amounts sufficient
to meet our needs, or at all.
As a R&D
company, we are eligible to receive investment tax credits from
various levels of government under the SR&ED incentive
programs. Depending on the financial condition of our operating
subsidiary, Intellipharmaceutics Corp., R&D expenses in any
fiscal year could be claimed. Eligible R&D expenses included
salaries for employees involved in R&D, cost of materials,
equipment purchase as well as third party contract services. This
amount is not a reduction in income taxes, but a form of government
refundable credits based on the level of R&D that we carry
out.
Effective October
1, 2018, the maturity date for the 2013 Debenture was extended to
April 1, 2019. Effective April 1, 2019, the maturity date for the
2013 Debenture was further extended to May 1, 2019. In December 2018, a principal repayment of
$300,000 was made on the 2013 Debenture. 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 was refinanced by the 2019 Debenture. On
May 1, 2019, the 2019 Debenture was issued with a principal amount
of $1,050,000, that 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, are the holders
of the 2019 Debenture.
On September 10,
2018, the Company completed a private placement financing of the
2018 Debenture in the principal amount of $0.5 million. The 2018
Debenture is due to 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 at a conversion price of
$3.00 per common share at the option of the holder. Drs. Isa
and Amina Odidi, who are directors, executive officers and
shareholders of our Company, provided the original $500,000 of the
proceeds for the 2018 Debenture.
On August 26, 2019,
the Company completed a private placement financing of the
unsecured August 2019 Debenture (as defined above) in the principal
amount of $140,800. The August 2019 Debenture will mature on August
26, 2020. The 2019 Debenture bears interest at a rate of 8% per
annum, payable monthly, is pre-payable at any time at the option of
the Company and is convertible at the option of the holder into
common shares after 180 days at a conversion price which is equal
to 75% of the market price. Market price is the average of the
lowest three (3) trading prices for the common shares during the
twenty (20) trading day period prior to the conversion
date.
CAPITAL
EXPENDITURES
Total capital
expenditures in the three and nine months ended August 31, 2019
were $10,684 and $24,097 compared to $15,358 and $99,690 in the
three and nine months ended August 31, 2018. Capital expenditures
in fiscal 2019 are related primarily to the purchase of lab and
computer equipment. Capital expenditures in fiscal 2018 are
primarily to purchase of plant and production
equipment.
CONTRACTUAL
OBLIGATIONS
In the table below,
we set forth our enforceable and legally binding obligations and
future commitments and obligations related to all contracts. Some
of the figures we include in this table are based on
management’s estimate and assumptions about these
obligations, including their duration, the possibility of renewal,
anticipated actions by third parties, and other factors. Operating
lease obligations relate to the lease of premises for the combined
properties, comprising the Company’s premises that it
operates from at 30 Worcester Road as well as the adjoining
property at 22 Worcester Road, which is indirectly owned by the
same landlord, which will expire in November 2020, subject to a 5
year renewal option. The Company also has an option to purchase the
combined properties up to November 30, 2020, based on a fair value
purchase formula but does not currently expect to exercise this
option in 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Third
parties
|
|
|
|
|
|
|
Accounts
payable
|
3,504,755
|
-
|
-
|
-
|
-
|
3,504,755
|
Accrued liabilities
|
1,174,186
|
-
|
-
|
-
|
-
|
1,174,186
|
Convertible debenture
|
2,961
|
2,806
|
2,837
|
143,483
|
-
|
152,087
|
Related
parties
|
|
|
|
|
|
|
Employee
costs payable
|
236,449
|
-
|
-
|
-
|
-
|
236,449
|
Convertible
debentures
|
1,083,845
|
12,457
|
12,594
|
12,594
|
500,137
|
1,621,627
|
Total
contractual obligations
|
6,002,196
|
15,263
|
15,431
|
156,077
|
500,137
|
6,689,104
|
CONTINGENCIES
AND LITIGATION
From time to time,
we may be exposed to claims and legal actions in the normal course
of business. As at August 31, 2019, and continuing as at October
11, 2019, we are not aware of any pending or threatened material
litigation claims against us, other than the following as described
below.
In November 2016,
we filed an NDA for our Oxycodone ER product candidate, relying on
the 505(b)(2) regulatory pathway, which allowed us to reference
data from Purdue's file for its OxyContin® extended
release oxycodone hydrochloride. Our Oxycodone ER application was
accepted by the FDA for further review in February 2017. 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 Orange Book, or that such patents are invalid, and so
notified Purdue and the other owners of the subject patents listed
in the Orange Book of such certification.
On April 7, 2017,
we received notice that the Purdue litigation plaintiffs had
commenced patent infringement proceedings 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. The Company 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 against us
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 were 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 claims construction on the first case which we
believe does not weaken the case.
On July 24, 2018,
the parties to the case mutually agreed to dismiss 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. Infringement claims related to this patent have
been dismissed without prejudice.
On October 4, 2018,
the parties to the 17-392 docket case 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 anticipated resubmission of the Oxycodone ER NDA.
That filing was timely filed at the end of Feb. 2019. The trial in
the 17-392 case was scheduled for Nov. 12, 2019. On Jan. 17, 2019,
the court issued a scheduling order in 18-404 that schedules the
remaining major portions. The trial in the 18-404 case was
scheduled for June 2020.
The U.S. Federal
Circuit Court of Appeal affirmed On April 4, 2019 the invalidity of
one Purdue oxycontin patent. The patent is: 9,060,976. This patent
claimed a core matrix containing PEO and magnesium stearate, which
is then heated. The patent was nominally in our 17-392 and 18-404
cases. The invalidity ruling reduces yet another patent from the
overall equation. However it does not, by itself, eliminate the 30
month litigation stay in either docketed case.
The 30-month
litigation stay is extended to March 2, 2020 per a court
order.
On October 3, 2019
following the filing of a bankruptcy stay by Purdue Pharma, the
ongoing litigation cases number 1:17-cv-00392-RGA and
1:18-cv-00404-RGA-SRF between Purdue Pharma L.P. et al and
Intellipharmaceutics International have been stayed and the
existing dates in both cases vacated by an order issued by the
courts in the District of Delaware. No new dates were given for
reinstatement; however, the parties are required to provide a
further status report no later than December 15, 2019.
The 30-month stay
date however remains unchanged, i.e., no earlier than March 2,
2020.
We are confident
that we do not infringe any of the subject patents in either of the
two cases and will vigorously defend against these
claims.
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
our 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 our 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. In an order entered at the parties
request on May 9, 2019, the Court stayed proceedings in the action
to permit the parties time to conduct a mediation. As a
result of subsequent extensions, the stay was extended through
October 10, 2019. The parties participated in a mediation on
August 1, 2019, during which the parties tentatively agreed to the
terms of a settlement of the action subject to the satisfaction of
certain financial conditions by the Company. On October 10,
2019, the Company provided notice that it was not able to satisfy
those conditions. As a result, it is possible that the
parties will resume active litigation in the action in the near
future. If a settlement does not go forward, 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 TSX during the Period
(“Motion”). On June 28, 2019, the Court endorsed a
timetable for the exchange of material leading to the hearing of
the Motion scheduled for January 27-28, 2020. 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.
On October 7, 2019,
a complaint was filed in the U.S. District Court for the Southern
District of New York by Alpha Capital Anstalt (“Alpha”)
against the Company, two of its existing officers and directors and
its former Chief Financial Officer. In the complaint, Alpha alleges
that the Company and the executive officers/directors named in the
complaint violated Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933, as amended, by allegedly making false and misleading
statements in the Company’s Registration Statement on Form
F-1 filed with the U.S. Securities and Exchange Commission on
September 20, 2018, as amended (the “Registration
Statement”) by failing to disclose certain information
regarding the resignation of the Company’s then Chief
Financial Officer, which was announced several weeks after the
Registration Statement was declared effective. In the complaint
Alpha seeks unspecified damages, rescission of its purchase of the
Company’s securities in the relevant offering,
attorneys’ fees and other costs and further relief as the
court may find just and proper. If they are served in the action,
the Company and other defendants intend to defend against the
allegations set forth in the complaint. However, there can be no
assurance that the case can be resolved in the Company's
favor.
RELATED
PARTY TRANSACTIONS
In January 2013,
the Company completed the private placement financing of the
unsecured 2013 Debenture in the original principal amount of $1.5
million. 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. Drs. Isa and Amina Odidi, who are directors, executive
officers and shareholders of our Company, provided us with the
original $1.5 million of the proceeds for the 2013 Debenture. In
December 2016, a principal repayment of $150,000 was made on the
2013 Debenture and the maturity date was extended until April 1,
2017. Effective March 28, 2017, the maturity date of the 2013
Debenture was extended to October 1, 2017. Effective September 28,
2017, the maturity date of the 2013 Debenture was further extended
to October 1, 2018. 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. In December 2018, a principal repayment of
$300,000 was made on the 2013 Debenture. 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 was refinanced by the 2019 Debenture. On
May 1, 2019, the 2019 Debenture was issued with a principal amount
of $1,050,000, that 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, are the holders
of the 2019 Debenture. On September 10, 2018, the Company completed
the 2018 Debenture Financing. The 2018 Debenture bears interest at
a rate of 10% per annum, payable monthly, may be prepaid at any
time at our option, and is convertible into common shares at any
time prior to the maturity date at a conversion price of $3.00 per
common share at the option of the holder. Drs. Isa and Amina Odidi,
who are directors, executive officers and shareholders of our
Company, provided us with the original $500,000 of proceeds for the
2018 Debenture. The maturity date for the 2018 Debenture is
September 1, 2020.
In September 2019,
the Company issued two Promissory note payable, unsecured,
non-interest bearing with no fixed repayment terms, in the amounts
of US$6,500 and CDN$203,886, to Dr. Isa Odidi and Dr. Amina Odidi,
our principal stockholders, directors and executive officers of the
Company.
To the
Company’s knowledge, Armistice Capital Master Fund, Ltd.
and/or its affiliates, previously a holder of in excess of 10% of
the Company’s outstanding common shares, participated in (i)
a registered direct offering in October 2017, pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright & Co., LLC
(“Wainwright”), and (ii) the registered direct
offerings completed in March 2018, pursuant to placement agent
agreements dated March 12, 2018 and March 18, 2018 between the
Company and Wainwright; and (iii) the underwritten public offering
completed in October 2018. Armistice Capital, LLC, Armistice
Capital Master Fund, Ltd., and Steven Boyd reported on a Schedule
13-G/A filed with the SEC on February 14, 2019, that it was the
beneficial owner of less than 10% of the Company’s common
shares; and, based on the number of common shares of the Company
outstanding as at August 31, 2019, these common shares currently
represent approximately 2.6% of the Company’s common
shares.
The Company’s
Corporate Governance Committee, made up of independent directors,
oversees any potential transaction and negotiation that could give
rise to a related party transaction or create a conflict of
interest, and conducts an appropriate review.
DISCLOSURE
CONTROLS AND PROCEDURES
Under the
supervision and with the participation of our management, including
the Chief Executive Officer and the Chief Financial Officer, we
have evaluated the effectiveness of our disclosure controls and
procedures as of August 31, 2019. Disclosure controls and
procedures are designed to ensure that the information required to
be disclosed by the Company in the reports it files or submits
under securities legislation is recorded, processed, summarized and
reported on a timely basis and that such information is accumulated
and communicated to management, including the Company’s Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow required disclosures to be made in a timely fashion. Based on
that evaluation, management has concluded that these disclosure
controls and procedures were effective as of August 31,
2019.
INTERNAL
CONTROL OVER FINANCIAL REPORTING
The management of
our Company is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company.
Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with generally accepted accounting principles and includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company’s assets,
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
the Company’s receipts and expenditures are being made only
in accordance with authorizations of the Company’s management
and directors, and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Management assessed
the effectiveness of the Company’s internal control over
financial reporting using the 1992 Internal Control-Integrated
Framework developed by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO").
Based on this
assessment, management concluded that the Company’s internal
control over financial reporting was effective as of August 31,
2019.
In the second
quarter of 2017, we initiated the transition from the COSO
1992 Internal Control - Integrated Framework to the COSO
2013 Internal Control - Integrated Framework. Management has
completed the business risk and information technology components
and is working towards completion of controls over financial
reporting as well as fraud risk. We currently expect the transition
to this new framework to continue through the fourth quarter of
fiscal year 2019. Although we do not expect to experience
significant changes in internal control over financial reporting as
a result of our transition, we may identify significant
deficiencies or material weaknesses and incur additional costs in
the future as a result of our transition.
Changes
in Internal Control over Financial Reporting
During the three
and nine months ended August 31, 2019, there were no changes made
to the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting, and specifically, there were no changes in
accounting functions, board or related committees and charters, or
auditors; no functions, controls or financial reporting processes
of any constituent entities were adopted as the Company’s
functions, controls and financial processes; and no other
significant business processes were implemented.
OFF-BALANCE
SHEET ARRANGEMENTS
The Company, as
part of its ongoing business, does not participate in transactions
that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as
structured finance or special purpose entities (“SPE”),
which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes. As of August 31, 2019, the Company was not
involved in any material unconsolidated SPE
transactions.
RISKS
AND UNCERTAINTIES
We are a R&D
company that received final FDA approval of our once daily generic
Focalin XR® capsules for the 15 and 30 mg strengths in
November 2013. 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
their timely payment to us of the contracted calendar quarterly
payments as they come due. Our near-term ability to generate
significant revenue will depend upon successful commercialization
of our products in the U.S., where the branded Focalin XR®
product and the branded Seroquel XR® product are in the
market. Although we have several other products in our pipeline,
and received final approval from the FDA for our generic Keppra
XR® (levetiracetam extended-release tablets) for the 500 and
750 mg strengths, final approval from the FDA for our generic
Glucophage XR® in the 500 and 750 mg strengths, final approval
from the FDA for our generic Effexor XR® in the 37.5, 75, and
150 mg strengths and of our generic Seroquel XR®, final
approval from the FDA for our generic Pristiq® (desvenlafaxine
extended-release tablets) in the 50 and 100 mg strengths the
majority of the products in our pipeline are at earlier stages of
development. We are exploring licensing and commercial alternatives
for our generic Seroquel XR®, generic Keppra XR®, generic
Effexor XR® and generic Glucophage XR® product strengths
that have been approved by the FDA. Potential licensing and
commercial alternatives for these products include licensing and
distribution deals for regions outside of North America. Because of
these characteristics, the Company is subject to certain risks and
uncertainties, or risk factors. The Company cannot predict or
identify all such risk factors nor can it predict the impact, if
any, of the risk factors on its business operations or the extent
to which a factor, event or any such combination may materially
change future results of financial position from those reported or
projected in any forward looking statements. Accordingly, the
Company cautions the reader not to rely on reported financial
information and forward-looking statements to predict actual future
results. This document and the accompanying financial information
should be read in conjunction with this statement concerning risks
and uncertainties. Some of the risks, uncertainties and events that
may affect the Company, its business, operations and results of
operations are given in this section. However, the factors and
uncertainties are not limited to those stated.
We believe that the
revenues derived from our generic Focalin XR® capsules are
subject to wholesaler buying patterns, increased generic
competition negatively impacting price, margins and market share
consistent with industry post-exclusivity experience and, to a
lesser extent, seasonality (as these products are indicated for
conditions including attention deficit hyperactivity disorder which
we expect may see increases in prescription rates during the school
term and declines in prescription rates during the summer months).
Accordingly, these factors may cause our operating results to
fluctuate.
Since we commenced
operations, we have incurred accumulated losses through August 31,
2019. We had an accumulated deficit of $92,372,511 as of August 31,
2019 and have incurred additional losses since such date. As we
engage in the development of products in our pipeline, we may
continue to incur further losses. There can be no assurance that we
will ever be able to achieve or sustain profitability or positive
cash flow. Our ultimate success will depend on how many of our
product candidates receive the approval by the FDA, Health Canada,
and the regulatory authorities of the other countries in which are
products are proposed to be sold and whether we are able to
successfully market approved products. We cannot be certain that we
will be able to receive FDA, Health Canada, or such other
regulatory approval for any of our current or future product
candidates, that we will reach the level of sales and revenues
necessary to achieve and sustain profitability, or that we can
secure other capital sources on terms or in amounts sufficient to
meet our needs, or at all.
Our business
requires substantial capital investment in order to conduct the
R&D, clinical and regulatory activities and to defend against
patent litigation claims in order to bring our products to market
and to establish commercial manufacturing, marketing and sales
capabilities. In the event that we do not obtain sufficient
additional capital, it will raise substantial doubt about our
ability to continue as a going concern, realize our assets, and pay
our liabilities as they become due.
Nasdaq has delisted
our common shares from trading on its exchange which could limit
investors’ ability to make transactions in our shares and
subject us to additional trading restrictions. Subsequent to
Nasdaq delisting our shares from trading on its exchange, our
shares are quoted in the over-the-counter market on the OTCQB. We
could face material adverse consequences due to the delisting of
our shares from Nasdaq, including: (i) a limited availability of
market quotations for our shares; (ii) reduced liquidity for our
shares; (iii) a determination that our common shares are
“penny stock” which will require brokers trading in our
common shares to adhere to more stringent rules and possibly result
in a reduced level of trading activity in the secondary trading
market for our shares; (iv) a limited amount of news and analyst
coverage; and (v) restrictions on our ability to issue additional
securities or obtain additional financing in the
future.
Our cash outflows
are expected to consist primarily of internal and external R&D,
legal and consulting expenditures to advance our product pipeline
and selling, general and administrative expenses to support our
commercialization efforts. Depending upon the results of our
R&D programs, the impact of the litigation against us and the
availability of financial resources, we could decide to accelerate,
terminate, or reduce certain projects, or commence new ones. Any
failure on our part to successfully commercialize approved products
or raise additional funds on terms favorable to us, or at all, may
require us to significantly change or curtail our 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 us not taking advantage of business opportunities,
in the termination or delay of clinical trials or in not taking any
necessary actions required by the FDA or Health Canada for one or
more of our product candidates, in curtailment of our product
development programs designed to identify new product candidates,
in the sale or assignment of rights to our technologies, products
or product candidates, and/or in our inability to file ANDAs, ANDSs
or NDAs at all or in time to competitively market our products or
product candidates.
We set goals
regarding the expected timing of meeting certain corporate
objectives, such as the commencement and completion of clinical
trials, anticipated regulatory approval and product launch dates.
From time to time, we may make certain public statements regarding
these goals. The actual timing of these events can vary
dramatically due to, among other things, insufficient funding,
delays or failures in our clinical trials or bioequivalence
studies, the uncertainties inherent in the regulatory approval
process, such as failure to secure requested product labeling
approvals, requests for additional information, delays in achieving
manufacturing or marketing arrangements necessary to commercialize
our product candidates and failure by our collaborators, marketing
and distribution partners, suppliers and other third parties to
fulfill contractual obligations. In addition, the possibility of a
patent infringement suit, such as the Purdue litigation, regarding
one or more of our product candidates could delay final FDA
approval of such candidates and materially adversely affect our
ability to market our products. Even if we are found not to
infringe Purdue’s or any other plaintiff’s patent
claims or the claims are found invalid or unenforceable, defending
any such infringement claims could be expensive and time-consuming
and could distract management from their normal responsibilities.
If we fail to achieve one or more of our planned goals, the price
of our common shares could decline.
Further risks and
uncertainties affecting us can be found elsewhere in this document,
in our latest Annual Information Form, our latest Form F-1 and
F-3 registration statements,
each as amended or supplemented (including any documents forming a
part thereof or incorporated by reference therein), and our latest
Form 20-F, as amended, and other public documents filed on SEDAR
and EDGAR.
ADDITIONAL INFORMATION
Additional
information relating to the Company, including the Company’s
latest Annual Information Form, our latest Form F-1 and F-3
registration statements, each as amended or supplemented (including
any documents forming a part thereof or incorporated by reference
therein), and latest Form 20-F, as amended, can be located under
the Company’s profile on the SEDAR website at www.sedar.com and on
the EDGAR section of the SEC’s website at www.sec.gov.
EXHIBIT
99.2
Condensed unaudited
interim consolidated financial statements of
Intellipharmaceutics
International
Inc.
August 31,
2019
Intellipharmaceutics
International Inc.
August 31,
2019
Table of
contents
Condensed unaudited
interim consolidated balance sheets
|
2
|
Condensed unaudited
interim consolidated statements of operations and comprehensive
loss
|
3
|
Condensed unaudited
interim consolidated statements of shareholders’ equity
(deficiency)
|
4
|
Condensed unaudited
interim consolidated statements of cash flows
|
5
|
Notes to the
condensed unaudited interim consolidated financial
statements
|
6-29
|
Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated balance sheets
|
|
|
As
at August 31, 2019 and November 30, 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
August 31,
|
November
30,
|
|
2019
|
2018
|
|
$
|
$
|
|
|
|
Assets
|
|
|
Current
|
|
|
Cash
|
54,359
|
6,641,877
|
Accounts
receivable, net
|
96,027
|
239,063
|
Investment
tax credits
|
1,133,849
|
998,849
|
Prepaid
expenses, sundry and other assets
|
258,235
|
586,794
|
Inventory
(Note 3)
|
219,928
|
251,651
|
|
1,762,398
|
8,718,234
|
|
|
|
Property
and equipment, net (Note 4)
|
2,400,276
|
2,755,993
|
|
4,162,674
|
11,474,227
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Accounts
payable
|
3,504,755
|
2,643,437
|
Accrued
liabilities
|
1,174,186
|
353,147
|
Employee
costs payable
|
236,449
|
222,478
|
Conversion
feature related to convertible debenture (Note 5)
|
129,685
|
-
|
Convertible
debenture (Note 5)
|
1,525,220
|
1,790,358
|
Deferred
revenue (Note 3)
|
-
|
300,000
|
|
6,570,295
|
5,309,420
|
|
|
|
Deferred
revenue (Note 3)
|
-
|
2,062,500
|
|
6,570,295
|
7,371,920
|
|
|
|
Shareholders' equity (deficiency)
|
|
|
Capital
stock (Note 6)
|
|
|
Authorized
|
|
|
Unlimited
common shares without par value
|
|
|
Unlimited
preference shares
|
|
|
Issued
and outstanding
|
|
|
22,085,856
common shares
|
45,561,222
|
44,327,952
|
(November
30, 2018 - 18,252,243)
|
|
|
Additional
paid-in capital
|
44,119,247
|
45,110,873
|
Accumulated
other comprehensive income
|
284,421
|
284,421
|
Accumulated
deficit
|
(92,372,511)
|
(85,620,939)
|
|
(2,407,621)
|
4,102,307
|
Contingencies
(Note 11)
|
|
|
|
4,162,674
|
11,474,227
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of operations and
comprehensive loss
|
|
|
For
the three and nine months ended August 31, 2019 and
2018
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Revenue
|
|
|
|
|
Licensing
(Note 3)
|
217,265
|
320,330
|
881,512
|
1,062,597
|
Up-front
fees (Note 3)
|
1,472,676
|
93,225
|
2,366,485
|
262,443
|
|
1,689,941
|
413,555
|
3,247,997
|
1,325,040
|
|
|
|
|
|
Cost of good sold
|
|
|
|
|
Cost
of goods sold
|
-
|
45,299
|
33,068
|
111,173
|
Gross Margin
|
1,689,941
|
368,256
|
3,214,929
|
1,213,867
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research
and development
|
1,625,353
|
3,324,221
|
5,412,653
|
7,783,549
|
Selling,
general and administrative
|
1,298,029
|
792,379
|
3,981,285
|
2,773,698
|
Depreciation
(Note 4)
|
126,872
|
155,288
|
378,932
|
457,314
|
|
3,050,254
|
4,271,888
|
9,772,870
|
11,014,561
|
|
|
|
|
|
Loss
from operations
|
(1,360,313)
|
(3,903,632)
|
(6,557,941)
|
(9,800,694)
|
Net
foreign exchange (loss) gain
|
(23,767)
|
9,406
|
(10,138)
|
17,106
|
Interest
income
|
11
|
8
|
865
|
22
|
Interest
expense
|
(55,720)
|
(59,886)
|
(169,822)
|
(179,402)
|
Financing
cost
|
(14,536)
|
-
|
(14,536)
|
-
|
Net
loss and comprehensive loss
|
(1,454,325)
|
(3,954,104)
|
(6,751,572)
|
(9,962,968)
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
(0.07)
|
(0.91)
|
(0.32)
|
(2.49)
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
shares outstanding, basic and diluted
|
22,081,275
|
4,353,678
|
21,411,017
|
4,006,582
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
|
|
Condensed
unaudited interim consolidated statements of shareholders' equity
(deficiency)
|
|
|
For
the nine months ended August 31, 2019 and 2018
|
|
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
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)
|
-
|
-
|
120,348
|
-
|
-
|
120,348
|
Proceeds
from issuance of shares and warrants (Note 6)
|
883,333
|
4,184,520
|
1,115,480
|
-
|
-
|
5,300,000
|
Cost
of warrants issued to placement agent (Note 9)
|
-
|
(141,284)
|
141,284
|
-
|
-
|
-
|
Share
issuance cost (Note 6)
|
-
|
(635,370)
|
(174,974)
|
-
|
-
|
(810,344)
|
Net
loss
|
-
|
-
|
-
|
-
|
(9,962,968)
|
(9,962,968)
|
Rounding
of fractional shares after consolidation (Note 2)
|
(106)
|
|
|
|
|
|
Balance, August 31, 2018
|
4,353,678
|
38,697,900
|
37,895,090
|
284,421
|
(81,836,427)
|
(4,959,016)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
-
|
-
|
213,691
|
-
|
-
|
213,691
|
Shares
issued upon exercise of 2018 Pre-Funded Warrants (Note
9)
|
3,823,334
|
1,007,658
|
(979,705)
|
-
|
-
|
27,953
|
Shares
issued upon exercise of DSUs (Note 8)
|
10,279
|
225,612
|
(225,612)
|
-
|
-
|
-
|
Net
loss
|
-
|
-
|
-
|
-
|
(6,751,572)
|
(6,751,572)
|
Balance, August 31, 2019
|
22,085,856
|
45,561,222
|
44,119,247
|
284,421
|
(92,372,511)
|
(2,407,621)
|
|
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
|
|
|
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of cash flows
|
|
|
For
the three and nine months ended August 31, 2019 and
2018
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Net loss
|
(1,454,325)
|
(3,954,104)
|
(6,751,572)
|
(9,962,968)
|
Items
not affecting cash
|
|
|
|
|
Depreciation
(Note 4)
|
125,989
|
155,288
|
378,932
|
457,314
|
Financing
cost
|
14,536
|
-
|
14,536
|
|
Stock-based
compensation (Note 7)
|
51,402
|
25,542
|
213,691
|
120,348
|
Deferred
share units (Note 8)
|
-
|
-
|
-
|
7,565
|
Accreted
interest on convertible debenture (Note 5)
|
8,813
|
16,369
|
25,011
|
48,510
|
Unrealized
foreign exchange loss (gain)
|
884
|
(14,882)
|
884
|
(11,365)
|
|
|
|
|
|
Change
in non-cash operating assets & liabilities
|
|
|
|
|
Accounts
receivable
|
198,798
|
182,558
|
143,036
|
426,279
|
Investment
tax credits
|
(45,000)
|
(45,000)
|
(135,000)
|
(135,001)
|
Inventory
|
-
|
(64,804)
|
31,723
|
(134,655)
|
Prepaid
expenses, sundry and other assets
|
159,159
|
(108,178)
|
328,559
|
(341,546)
|
Accounts
payable, accrued liabilities and employee costs
payable
|
1,319,326
|
2,594,283
|
1,696,326
|
3,329,225
|
Deferred
revenue (Note 3)
|
(1,469,716)
|
(75,000)
|
(2,362,500)
|
(225,000)
|
Cash
flows used in operating activities
|
(1,090,134)
|
(1,287,928)
|
(6,416,374)
|
(6,421,294)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Repayment
of principal on convertible debenture (Note 5)
|
-
|
-
|
(300,000)
|
-
|
Proceeds
from issuance of shares on exercise of 2018 Pre-Funded Warrants
(Note 9)
|
-
|
-
|
27,953
|
-
|
Proceed
from issuance of shares and warrants (Note 6 and 9)
|
-
|
-
|
-
|
5,300,000
|
2019
Debenture financing (Note 5)
|
140,800
|
-
|
140,800
|
-
|
Debenture
financing cost
|
(15,800)
|
-
|
(15,800)
|
-
|
Offering
costs
|
-
|
-
|
-
|
(618,689)
|
Cash
flows provided from financing activities
|
125,000
|
-
|
(147,047)
|
4,681,311
|
|
|
|
|
|
Investing activity
|
|
|
|
|
Purchase
of property and equipment (Note 4)
|
(10,684)
|
(15,358)
|
(24,097)
|
(99,690)
|
Cash
flows used in investing activities
|
(10,684)
|
(15,358)
|
(24,097)
|
(99,690)
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash
|
(975,818)
|
(1,303,286)
|
(6,587,518)
|
(1,839,673)
|
Cash,
beginning of period
|
1,030,177
|
1,360,674
|
6,641,877
|
1,897,061
|
|
|
|
|
|
Cash, end of period
|
54,359
|
57,388
|
54,359
|
57,388
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
Interest
paid
|
29,394
|
12,419
|
120,148
|
92,029
|
Taxes
paid
|
-
|
-
|
-
|
-
|
|
|
|
|
|
See
accompanying notes to condensed unaudited interim consolidated
financial statements
|
|
|
|
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
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 $1,454,325 and
$6,751,572 for the three and nine months ended August 31, 2019
(three and nine months ended August 31, 2018 – loss of
$3,954,104 and $9,962,968), and has an accumulated deficit of
$92,372,511 as at August 31, 2019 (November 30, 2018 -
$85,620,939). The Company has a working capital deficiency of
$4,807,897 as at August 31, 2019 (November 30, 2018 – working
capital of $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, strategic
alliance agreements, and other relevant commercial
considerations.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
1.
Nature
of operations (continued)
Going
concern (continued)
In addition, if the
Company raises additional funds by issuing equity securities, its
then existing security 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 does 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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
2.
Basis
of presentation (continued)
(a)
Basis of consolidation (continued)
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 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.
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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(a)
Revenue recognition (continued)
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.
The Company also
had a license and commercial supply agreement with Mallinckrodt LLC
(“Mallinckrodt”) which provided 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 was 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 recorded revenue once
Mallinckrodt obtained control of the product and the performance
obligation was satisfied.
On April 12, 2019,
Mallinckrodt and the Company mutually agreed to terminate their
Commercial Supply Agreement (the “Mallinckrodt
agreement”) on 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.
Licensing revenue
in respect of manufactured product is reported as revenue in
accordance with ASC 606. Once product was 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
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 and nine months ended August 31, 2019,
the Company recognized $1,469,716 and $2,363,525 (three and nine
months ended August 31, 2018 - $75,000 and $225,000) of revenue
over the remaining term of the Mallinckrodt agreement, which
expired on August 31, 2019.
As of August 31,
2019, the Company has recorded a deferred revenue balance of $Nil
(November 30, 2018 - $2,362,500) due to the termination of our
license and commercial supply agreement with
Mallinckrodt.
(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.
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 August 31, 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(e)
Convertible debentures
(continued)
of
the beneficial conversion feature related to the 2018 Debenture was
allocated to shareholders’ equity.
On May 1, 2019, the
Company issued an unsecured convertible debenture in the principal
amount of $1,050,000, that 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 (the “2019 Debenture”). At
issuance, the conversion option was not characterized as an
embedded derivative as it did not meet the criteria of ASC topic
815 Derivatives and Hedging. Also, at issuance, as the conversion
price was higher than the market share price, conversion option was
not bifurcated from its host contract and the total value of the
convertible debenture was recognized as a liability.
On August 26, 2019,
the Company issued an unsecured convertible debenture in the
principal amount of $140,800 (the “August 2019
Debenture”). At issuance, the conversion option was
bifurcated from its host contract and the fair value of the
conversion option was characterized as a derivative upon issuance
as it met the criteria of ASC topic 815 Derivatives and Hedging.
Subsequent changes in the fair value of the derivative were
recorded in the consolidated statements of operations and
comprehensive loss. The proceeds received from the August 2019
Debenture less the initial amount allocated to the derivative were
allocated to the host debt liability and were accreted over the
life of the August 2019 Debenture using the effective rate of
interest.
(f)
Investment tax credits
The investment 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 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 and nine months ended August 31,
2019.
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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
3.
Significant
accounting policies (continued)
(g)
Recently adopted accounting pronouncements
(continued)
the Company’s
condensed unaudited interim consolidated financial statements for
the three and nine months ended August 31, 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 and
nine months ended August 31, 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
|
-
|
-
|
20,307
|
-
|
-
|
-
|
24,097
|
Balance
at August 31, 2019
|
554,876
|
156,059
|
172,498
|
5,387,952
|
1,441,452
|
276,300
|
76,458
|
8,065,595
|
|
|
|
|
|
|
|
|
|
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
|
42,786
|
4,674
|
6,301
|
254,270
|
62,126
|
9,300
|
357
|
379,814
|
Balance
at August 31, 2019
|
406,448
|
148,267
|
136,792
|
3,337,078
|
1,337,907
|
223,598
|
75,229
|
5,665,319
|
|
|
|
|
|
|
|
|
|
Net book value at:
|
|
|
|
|
|
|
|
|
November
30, 2018
|
187,424
|
12,466
|
42,007
|
2,284,837
|
165,671
|
62,002
|
1,586
|
2,755,993
|
August
31, 2019
|
148,428
|
7,792
|
35,706
|
2,050,874
|
103,545
|
52,702
|
1,229
|
2,400,276
|
As at
August 31, 2019, there was $606,271 (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 and nine months ended August 31, 2019,
the Company recorded depreciation expense within cost of
goods sold in the amount of $Nil and $882 (three and nine
months ended August 31, 2018 - $Nil and $Nil),
respectively.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
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
(“2019 Debenture”)
|
$1,050,000
|
-
|
Convertible
debenture payable to two directors and officers of the Company,
unsecured, 12% annual interest rate,
payable
monthly (“2013 Debenture”)
|
-
|
$1,350,000
|
Convertible
debenture payable to two directors and officers of
the Company,
unsecured, 10% annual interest rate,
payable monthly
(“2018 Debenture”)
|
$464,968
|
$440,358
|
Convertible
debenture payable to Power up lending group,
Unsecured, 8%
annual interest rate, payable monthly
(“August 2019
Debenture”)
|
$10,252
|
-
|
|
$1,525,220
|
$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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
Convertible
debentures (continued)
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.
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%.
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that will mature
on November 1, 2019, bear interest at a rate of 12% per annum and
be convertible into 1,779,661 common
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
5.
Convertible
debentures (continued)
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 2019
Debenture.
On August 26, 2019,
the Company completed a private placement financing of the
unsecured August 2019 Debenture (as defined above) in the principal
amount of $140,800. The August 2019 Debenture will mature on August
26, 2020, bears interest at a rate of 8% per annum, payable
monthly, is pre-payable at any time at the option of the Company
and is convertible at the option of the holder into common shares
after 180 days at a conversion price which is equal to 75% of the
market price. Market price is defined as the average of the lowest
three (3) trading prices for the common shares during the twenty
(20) trading day period prior to the conversion date.
The fair value of
the conversion option at August 26, 2019 using the Black-Scholes
Option Pricing Model was initially estimated to be $129,685, using
share price of $0.22, exercise price of $0.16, volatility of
164.65%, risk-free interest rate of 1.75%, expected life of one
year, and dividend yield of Nil.
Accreted interest
expense during the three and nine months ended August 31, 2019 is
$8,813 and $25,011 (three and nine months ended August 31, 2018 -
$16,369 and $48,510) 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, 2018 Debenture and 2019 Debenture (collectively, the
“Debentures”) for the three and nine months ended
August 31, 2019 is $44,731 and $135,486 (three and nine months
ended August 31, 2018 – $40,805 and $121,528) and has also
been included in the condensed unaudited interim consolidated
statements of operations and comprehensive loss.
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 August 31, 2019, the Company had 22,085,856 (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
August 31, 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
6(f) 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
6.
Capital
stock (continued)
Authorized, issued and outstanding (continued)
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 intoan
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.
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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
6.
Capital
stock (continued)
Authorized, issued and outstanding (continued)
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.
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 and nine months
ended August 31, 2019, Nil and 2,793,334 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 August 31, 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.
(g)
In July 2019, the
company issued 10,279 common shares due to the exercise of 10,279
Deferred Share Units. The Company recorded a charge of $225,612
from Additional paid-in-capital to common shares under Capital
stock.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
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
2,208,586 based on the number of issued and outstanding common
shares as at August 31, 2019. As at August 31, 2019, 2,128,041
options are outstanding and there were 80,545 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 August 31, 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 August 31, 2019.
In the three and
nine months ended August 31, 2019, Nil and 1,687,000 (three and
nine months ended August 31, 2018 – Nil) stock options were
granted to management and other employees and 200,000 (three and
nine months ended August 31, 2018 – Nil) stock options were
granted to members of the Board of Directors.
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.
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.
The weighted
average fair value of employee stock options granted was estimated
using the following assumptions:
|
|
|
|
|
|
|
|
|
-
|
-
|
93.90
- 111.93%
|
-
|
Risk-free
interest rate
|
-
|
-
|
1.62
- 1.90%
|
|
Expected
life (in years)
|
-
|
-
|
5.78
- 10.00
|
-
|
The
weighted average grant date
|
|
|
|
|
fair
value of options granted
|
-
|
-
|
0.22
- 0.28
|
-
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
Details of stock
option transactions in Canadian dollars (“C$”) are as
follows:
|
August 31, 2019
|
August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
$
|
|
#
|
$
|
$
|
Outstanding,
beginning of period
|
555,651
|
31.75
|
16.69
|
582,811
|
32.00
|
17.20
|
Granted
|
1,887,000
|
0.35
|
0.26
|
-
|
-
|
-
|
Expired
|
(31,550)
|
37.71
|
17.60
|
(15,827)
|
54.20
|
39.20
|
Forfeited
|
(6,666)
|
4.72
|
2.61
|
(8,500)
|
11.90
|
10.20
|
Balance
at
|
|
|
|
|
|
|
end
of period
|
2,404,435
|
8.42
|
3.78
|
558,484
|
31.60
|
16.70
|
|
|
|
|
|
|
|
Options
exercisable end of period
|
1,141,431
|
17.26
|
7.62
|
503,444
|
32.50
|
17.20
|
Total unrecognized
compensation cost relating to the unvested performance-based stock
options at August 31, 2019 is $Nil (August 31, 2018 -
$793,795).
For the three and
nine months ended August 31, 2019 and 2018, no options were
exercised.
The following table
summarizes the components of stock-based compensation
expense.
Stock-based
compensation
|
|
|
related
to:
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Research
and development
|
40,517
|
11,072
|
172,274
|
79,067
|
Selling,
general and administrative
|
10,885
|
14,470
|
41,417
|
41,281
|
|
51,402
|
25,542
|
213,691
|
120,348
|
The Company has
estimated its stock option forfeitures to be approximately 4% for
the three and nine months ended August 31, 2019 (three and nine
months ended August 31, 2018 – 4%).
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
and nine months ended August 31, 2019, no non-management board
members elected to receive director fees in the form of DSUs under
the Company’s DSU Plan. As at August 31, 2019, Nil (August
31, 2018 – 10,279) DSUs are outstanding and 721 (August 31,
2018 – 721) DSUs are available for grant under the DSU Plan.
The Company recorded the following amounts related to DSUs for each
of the three and nine months ended August 31, 2019 and three and
nine months ended August 31, 2018 in additional paid in capital and
accrued the following amounts as at August 31, 2019 and August 31,
2018:
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
8.
Deferred
share units (continued)
|
|
|
|
|
|
|
August 31, 2019
|
August 31,
2018
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Additional
paid in capital
|
-
|
-
|
-
|
-
|
-
|
-
|
7,565
|
866
|
Accrued
liability
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
During the three
and nine months ended August 31, 2019, 10,729 DSU’s were
exercised and the Company recorded a charge of $225,612 from
Additional paid-in-capital to common shares under Capital
stock.
9.
Warrants
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 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 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
March 2018 Warrants
to purchase an additional 441,666 common shares. The March 2018 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 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 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 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
and nine months ended August 31, 2019, Nil and 2,793,334 (three and
nine months ended August 31, 2018 – Nil) 2018 Pre-Funded
Warrants were exercised for proceeds of $Nil and $27,953 (three and
nine months ended August 31, 2018 - $Nil), and the Company recorded
a charge of $979,705 (three and nine months ended August 31, 2018 -
$Nil) from Additional paid-in-capital to common shares under
Capital stock. During the nine months ended August 31, 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 August 31,
2019, 1,616,667 2018 Pre-Funded Warrants are outstanding which are
exercisable immediately at $0.01 per share. In addition, the
following table provides information on the 23,740,290 warrants
including 2018 Firm Warrants outstanding and exercisable as of
August 31, 2019:
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
|
|
|
|
|
Warrant
|
|
|
Expiry
|
|
|
|
|
|
|
June
2016 Warrants
|
$19.30
|
277,478
|
June
02, 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
|
1,616,667
|
October
16, 2023
|
1,616,667
|
October
2018 Placement
|
|
|
|
|
Agent Warrants
|
$0.9375
|
1,160,314
|
October
16, 2023
|
1,160,314
|
|
|
23,740,290
|
|
23,601,551
|
During the three
and nine months ended August 31, 2019, other than 2018 Pre-Funded
Warrants as noted above, there were no cash exercises in respect of
warrants (three and nine months ended August 31, 2018 – Nil)
and no cashless exercise (three and nine months ended August 31,
2018 - Nil) of warrants, resulting in the issuance of Nil (three
and nine months ended August 31, 2018 – Nil) and Nil (three
and nine months ended August 31, 2018 - Nil) common shares,
respectively.
Details of warrant
transactions are as follows:
|
Outstanding,
December
1, 2018
|
|
|
|
Outstanding,
August 31, 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
|
-
|
-
|
(2,793,334)
|
1,616,667
|
October
2018 Placement
|
|
|
|
|
|
Agent
Warrants
|
1,160,314
|
-
|
-
|
-
|
1,160,314
|
|
26,533,624
|
-
|
-
|
(2,793,334)
|
23,740,290
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 1,
2017
|
149,174
|
87,000
|
277,478
|
181,818
|
18,181
|
-
|
-
|
713,651
|
Issued
|
-
|
-
|
-
|
-
|
|
441,666
|
44,166
|
485,832
|
Expired
|
(149,174)
|
(87,000)
|
-
|
-
|
-
|
-
|
-
|
(236,174)
|
Outstanding,
August 31,
2018
|
-
|
-
|
277,478
|
181,818
|
18,181
|
441,666
|
44,166
|
963,309
|
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 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 and nine months ended August 31, 2019 and
August 31, 2018. The Company has non-capital loss carry-forwards at
August 31, 2019, totaling $50,854,085 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 and
nine months ended August 31, 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 and
nine months ended August 31, 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 August 31, 2019,
and continuing as at October 11, 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 our Oxycodone ER product candidate,
relying on the 505(b)(2) regulatory pathway, which allowed us to
reference data from Purdue's file for its OxyContin® extended
release oxycodone hydrochloride. Our Oxycodone ER application was
accepted by the FDA for further review in February 2017. The
Company certified to the FDA that it believed that its Oxycodone ER
product candidate would not infringe any of the OxyContin®
patents listed in the Orange Book, or that such patents are
invalid, and so notified Purdue 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 the Purdue litigation plaintiffs
had commenced patent infringement proceedings against us in the
U.S. District Court for the District of Delaware (docket number
17-392) in respect of its 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 us 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 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 were 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.
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
11.
Contingencies
(continued)
On July 6, 2018 the
court issued a claims construction on the first case which the
Company believe does not weaken the case.
On July 24, 2018,
the parties to the case mutually agreed to dismiss 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. Infringement claims related to this patent have
been dismissed without prejudice.
On October 4, 2018, the
parties to the 17-392 docket case 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
anticipated resubmission of the Oxycodone ER NDA. That filing was
timely filed at the end of February 2019. The trial in the 17-392
case was scheduled for November 12, 2019. On January 17, 2019, the
court issued a scheduling order in 18-404 that schedules the
remaining major portions. The trial in the 18-404 case was
scheduled for June 2020.
The U.S. Federal
Circuit Court of Appeal affirmed On April 4, 2019 the invalidity of
one Purdue oxycontin patent. The patent is: 9,060,976. This patent
claimed a core matrix containing PEO and magnesium stearate, which
is then heated. The patent was nominally in our 17-392 and 18-404
cases. The invalidity ruling reduces yet another patent from the
overall equation. However, it does not, by itself, eliminate the 30
month litigation stay in either docketed case.
The
30-month litigation stay is extended to March 2, 2020 per a court
order.
On October 3, 2019
following the filing of a bankruptcy stay by Purdue Pharma, the
ongoing litigation cases number 1:17-cv-00392-RGA and
1:18-cv-00404-RGA-SRF between Purdue Pharma L.P. et al and
Intellipharmaceutics International have been stayed and the
existing dates in both cases vacated by an order
issued by the courts in the
District of Delaware. No new dates were given for reinstatement;
however, the parties are required to provide a further status
report no later than December 15, 2019.
The 30-month stay
date however remains unchanged, i.e., no earlier than March 2,
2020.
The Company is
confident that it does not infringe any of the subject patents in
either of the two cases and will vigorously defend against these
claims.
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
our 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 our 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. In an order entered at the parties
request on May 9, 2019, the Court stayed proceedings in the action
to permit the parties time to conduct
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
11.
Contingencies
(continued)
a mediation.
As a result of subsequent extensions, the stay was extended through
October 10, 2019. The parties participated in a mediation on
August 1, 2019, during which the parties tentatively agreed to the
terms of a settlement of the action subject to the satisfaction of
certain financial conditions by the Company. On October 10,
2019, the Company provided notice that it was not able to satisfy
those conditions. As a result, it is possible that the
parties will resume active litigation in the action in the near
future. If a settlement does not go forward, 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 TSX during the Period
(“Motion”). On June 28, 2019, the Court endorsed a
timetable for the exchange of material leading to the hearing of
the Motion scheduled for January 27-28, 2020. 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.
On October 7, 2019,
a complaint was filed in the U.S. District Court for the Southern
District of New York by Alpha Capital Anstalt (“Alpha”)
against the Company, two of its existing officers and directors and
its former Chief Financial Officer. In the complaint,
Alpha alleges that the Company and the executive officers/directors
named in the complaint violated Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, by allegedly making false and
misleading statements in the Company’s Registration Statement
on Form F-1 filed with the U.S. Securities and Exchange Commission
on September 20, 2018, as amended (the “Registration
Statement”) by failing to disclose certain information
regarding the resignation of the Company’s then Chief
Financial Officer, which was announced several weeks after the
Registration Statement was declared effective. In the
complaint Alpha seeks unspecified damages, rescission of its
purchase of the Company’s securities in the relevant
offering, attorneys’ fees and other costs and further relief
as the court may find just and proper. If they are served in the
action, the Company and other defendants intend to defend against
the allegations set forth in the complaint. However,
there can be no assurance that the case can be resolved in the
Company's favor.
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 and nine months ended August 31, 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).
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
12.
Financial
instruments (continued)
(a) Fair values (continued)
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Financial
Liabilities
|
|
|
|
|
Convertible debenture(i)
|
1,525,220
|
1,710,557
|
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
|
162,876
|
305,912
|
Less
allowance for doubtful accounts
|
(66,849)
|
(66,849)
|
Total
accounts receivable, net
|
96,027
|
239,063
|
|
|
|
Not
past due
|
96,027
|
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
|
162,876
|
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
and nine months ended August 31, 2019 and 2018, one customer
accounted for substantially all the revenue and two of the
customers accounted for 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
Intellipharmaceutics
International Inc.
Notes to the
condensed unaudited interim consolidated financial
statements
For the three and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
12.
Financial
instruments (continued)
(b)
Interest rate and credit risk (continued)
bank accounts with
a Canadian Chartered Bank. The Company’s cash is not subject
to any external restrictions.
(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 August 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
Third
parties
|
|
|
|
|
|
|
Accounts
payable
|
3,504,755
|
-
|
-
|
-
|
-
|
3,504,755
|
Accrued
liabilities
|
1,174,186
|
-
|
-
|
-
|
-
|
1,174,186
|
Convertible
debenture (Note 5)
|
2,961
|
2,806
|
2,837
|
143,483
|
-
|
152,087
|
Related
parties
|
|
|
|
|
|
|
Employee
costs payable
|
236,449
|
-
|
-
|
-
|
-
|
236,449
|
Convertible
debentures (Note 5)
|
1,083,845
|
12,457
|
12,594
|
12,594
|
500,137
|
1,621,627
|
Total
contractual obligations
|
6,002,196
|
15,263
|
15,431
|
156,077
|
500,137
|
6,689,104
|
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 and
nine months ended August 31, 2019 and 2018
(Stated in U.S.
dollars)
13.
Segmented
information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Revenue
|
|
|
|
|
Canada
|
-
|
-
|
-
|
-
|
United
States
|
1,689,941
|
413,555
|
3,247,997
|
1,325,040
|
|
1,689,941
|
413,555
|
3,247,997
|
1,325,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
2018
|
|
|
|
$
|
$
|
Total
assets
|
|
|
|
|
Canada
|
|
|
4,162,674
|
11,474,227
|
|
|
|
|
|
Total
property and equipment
|
|
|
|
|
Canada
|
|
|
2,400,276
|
2,755,993
|
14.
Subsequent
event
In September 2019, the Company issued two Promissory notes payable,
unsecured, non-interest bearing with no fixed repayment terms, in
the amount of U.S $6,500 and Cdn$203,886, to Dr. Isa Odidi and Dr.
Amina Odidi, directors and executive officers of the
Company.
EXHIBIT
99.3
Intellipharmaceutics
Announces Third Quarter 2019 Results
Toronto, Ontario October 11, 2019 – Intellipharmaceutics International Inc. (OTCQB:
IPCIF and TSX: IPCI) (“Intellipharmaceutics” or
the “Company”), a pharmaceutical company specializing
in the research, development and manufacture of novel and generic
controlled-release and targeted-release oral solid dosage drugs,
today reported the results of operations for the three and nine
months ended August 31, 2019. All dollar amounts referenced herein
are in United States dollars unless otherwise noted.
●
On October 4, 2019,
we announced that following the filing of a bankruptcy stay by
Purdue Pharma L.P., the Company’s ongoing litigation cases,
number 1:17-cv-00392-RGA and 1:18-cv-00404-RGA-SRF between Purdue
Pharma L.P. et al and Intellipharmaceutics, have been stayed and
the existing trial dates in both cases have been vacated by orders
issued in each case by the judge in the District of Delaware on
October 3, 2019. No new dates were given for reinstatement;
however, the parties are required to provide a further status
report to the judge in each case no later than December 15, 2019.
The previous 30-month stay date of March 2, 2020, remains unchanged
at this time, absent a further order of the judge. There can be no
assurance when the now-vacated dates will be reinstated. The
Company and its management intend to continue to vigorously defend
against the claims of patent infringement made by Purdue Pharma
L.P. in the above cases. However, there can be no assurance that
the above cases can be resolved in the Company's
favor.
●
On September 30,
2019, pursuant to an Abbreviated New Drug Application
(“ANDA”) Sale Agreement (the “ANDA
Agreement”) we sold Levetiracetam extended-release tablets
500mg and 750 mg to the ANDA Repository, LLC (the
“Purchaser”) in exchange for a purchase price of $1.00
for each “Transferred ANDA”. “Transferred
ANDA” is defined as all of the assets relating to the ANDA
for Levetiracetam extended-release tablets 500mg and 750 mg.
Additionally, pursuant to the ANDA Agreement, we agreed to pay the
Purchaser an annual fee for each fiscal year beginning on October
1, 2019, equal to 50% of the difference between our United States
Food and Drug Administration (“FDA”) Program Fee tier
based on the total number of our approved ANDAs plus the
Transferred ANDA. and our Program Fee based on the total number of
our approved ANDAs less the Transferred ANDA. Further, under the
ANDA Agreement, we have the option to repurchase the Levetiracetam
ANDA for a purchase price of $1 .at any time according to the terms
of the agreement.
●
On September 5,
2019, we announced that the Company has entered into a license and
commercial supply agreement with Tris Pharma, Inc. ("Tris"), by
which the Company has granted Tris an exclusive license to market,
sell and distribute in the United States, Desvenlafaxine Succinate
ER in the 50 and 100 mg strengths (the "licensed products")
approved for sale in the U.S. market by the U.S. Food and Drug
Administration FDA.
●
On August 15, 2019,
we announced that the Company has entered into a license and
commercial supply agreement with Tris, by which the Company has
granted Tris an exclusive license to market, sell and distribute in
the United States, Quetiapine ER in the 50, 150, 200, 300 and 400
mg strengths (the "licensed products") approved for sale in the US
market by the FDA.
●
On July 24, 2019,
we announced that the Company has been advised by the FDA that the
FDA “is postponing product-specific advisory committee
meetings for opioid analgesics,” including the one previously
scheduled to discuss the Company’s NDA, “while it
continues to consider a number of scientific and policy issues
relating to this class of drugs.” According to the FDA, the
reason for the postponement is not unique to our Product and the
Anesthetic and Analgesic Drug products Advisory Committee
(“AADPAC”) meeting earlier planned by the FDA, to
discuss our NDA will be rescheduled at a future date. The FDA
informed the Company that it would continue to review the
Company’s NDA according to the existing Prescription Drug
User Fee Act (“PDUFA”) timeline, but noted that, due to
the postponement of the AADPAC meeting, it is possible that the FDA
may be unable to meet the PDUFA goal date of August 28, 2019. A
previously scheduled Advisory Committee meeting in respect of the
NDA, was postponed by the FDA. The FDA did not meet the goal date
of August 28, 2019, and the Company is awaiting to hear back from
the FDA for an Advisory Committee meeting date and a new PDUFA goal
date.
●
On July 8, 2019, we
announced that the Company has obtained an equity financing
commitment of up to $10,000,000 from Silverback Capital
Corporation, a private investment firm (“Silverback
Capital”). During the 36-month term of the equity financing
commitment, we may sell shares of its common stock to Silverback
Capital up to the $10,000,000 total commitment at a 25% discount to
the volume weighted average price of the Company’s common
stock for the five trading days prior to the date the Company
provides notice to Silverback Capital, or if the maximum discount
rate allowed by the Company’s principal exchange is less than
25%, the maximum discount rate allowed. The Company will determine,
in its sole discretion, the timing and amount of any sales of its
stock, subject to certain conditions. Upon notice by the Company,
Silverback Capital is required to purchase the shares, subject to
certain conditions, including, but not limited to, that there is an
effective U.S. registration statement covering resale of the
shares. There can be no assurance that the equity financing
commitment from Silverback Capital can be completed as planned, or
at all.
●
On June 4, 2019,
the Company presented at the 9th annual LD Micro Invitational.
LD Micro
was founded in 2006 with the sole purpose of being an independent
resource in the microcap space and now hosts several influential
events annually.
●
On May 30, 2019, we
announced that the Company’s pre-existing license to conduct
activities with Cannabidiol (“CBD”) has been migrated
by Health Canada to a Cannabis Drug License (“CDL”)
under the Cannabis Regulations. Our new Cannabis Drug License
allows the Company to continue to possess cannabis, produce a drug
containing cannabis and sell a drug containing cannabis. The CDL is
unique from other forms of cannabis licenses in Canada as,
according to Health Canada, it is a requirement for any company
that intends to produce and sell a prescription drug containing
cannabis or cannabinoids. Only companies, such as ours, with a
Health Canada issued Drug Establishment License are eligible to
apply for a Cannabis Drug License. There can be no assurance that
we will be able to develop cannabis-based products or that any
cannabis-based product candidates we develop will ever be
successfully commercialized or produce significant, or any, revenue
for us.
●
The Company held
its Annual Meeting of its shareholders at which the Company’s
shareholders voted to ratify the reappointment of MNP LLP,
Chartered Professional Accountants (“MNP”), as the
auditor of the Company and to authorize the directors to fix the
auditor’s remuneration for MNP and re-electing the following
members of the Company’s Board of Directors Dr. Isa Odidi,
Dr. Amina Odidi, Bahadur Madhani, Kenneth Keirstead, Norman Betts
and Shawn Graham.
●
On May 10, 2019, we
announced that the Company
has received approval from the FDA for the Company's ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. The approved product is a generic equivalent of the
branded product Pristiq®. Desvenlafaxine extended-release
tablets are a serotonin and norepinephrine reuptake inhibitor
("SNRI") indicated for the treatment of major depressive disorder
("MDD"). There can be no assurance that the Company's
desvenlafaxine extended-release 50 mg, and 100 mg tablets will be
successfully commercialized and produce significant revenue for
us.
●
On April 24, 2019,
an order was issued, setting the trial date for the Company's
ongoing Purdue litigation case, case number 17-392 in the District
of Delaware, with the trial is scheduled to begin on November 12,
2019 and a decision is expected by March 2, 2020. The 30-month stay
date is now March 2, 2020. On April 4, 2019, the U.S. Federal
Circuit Court of Appeals affirmed the invalidity of one Purdue
Oxycontin formulation patent, subject to further appeal to the U.S.
Supreme Court. The Company and its management intend to continue to
vigorously defend against these claims and firmly believe that we
do not infringe the subject patents.
●
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 was released from certain obligations under
the license and commercial supply agreement as of April 12, 2019.
Effective August 15, 2019 the Mallinckrodt agreement was
terminated.
●
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 was refinanced by a new debenture (the
“2019 Debenture”). On May 1, 2019, the 2019 Debenture
was issued with a principal amount of $1,050,000, that 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, are the holders of the 2019
Debenture.
●
In March 2019, we
announced that we had resubmitted, and, 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
PDUFA goal date of August 28, 2019 A previously scheduled Advisory
Committee meeting in respect of the NDA, was postponed by the FDA.
The FDA did not meet the goal date of August 28, 2019, and the
Company is awaiting to hear back from the FDA for an Advisory
Committee meeting date and a new PDUFA goal date. However, there
can be no assurance that the Company 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 or that
the FDA will meet its deadline for review and ultimately approve
the NDA for the sale of Oxycodone ER in the U.S. market, or that it
will ever be successfully commercialized.
●
As more fully
described below (under the heading “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. The Company is also listed on the Toronto Stock
Exchange and the Company's non-compliance with Nasdaq's bid price
requirement does not impact the Company's listing or trading status
on that exchange.
●
On February 21,
2019, we and our CEO, Dr. Isa Odidi (the “Defendants”),
were served with a Statement of Claim filed in the Superior Court
of Justice of Ontario (the “Court”) for a proposed
class action under the Ontario Class Proceedings Act (the
“Action”). The Action was brought by Victor Romita, the
proposed representative plaintiff (the “Plaintiff”), on
behalf of a class of Canadian persons (the “Class”) who
traded shares of the Company during the period from February 29,
2016 to July 26, 2017 (the “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 January 2019, we
announced that we had commenced a research and development
(“R&D”) program of pharmaceutical 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.
We also have a CDL from Health Canada.
Results of Operations
The
Company recorded net loss for the three months ended August 31,
2019 of $1.4 million or $0.07 per common share, compared with a net
loss of $4.0 million or $0.91 per common share for the three months
ended August 31, 2018. In the three months ended August 31, 2019,
the lower net loss is attributed to the higher recognition of
Mallinckrodt upfront fees due to the change in contract term with
Mallinckrodt which expired August 31, 2019 compared to the original
ten-year term and to a greater extent, sales of generic Seroquel
XR® shipped to Mallinckrodt, combined with increased
administrative expense related to professional and legal fees and
decreased R&D expenses. In the three months ended August 31,
2018, the net loss was attributed to lower recognition of
Mallinckrodt upfront fees combined with increased R&D
expenses.
The
Company recorded revenues of $1.7 million for the three months
ended August 31, 2019 versus $0.4 million for the three months
ended August 31, 2018. Such revenues consisted primarily of
licensing revenues from commercial sales of the 15, 30 and 40 mg
strengths of our generic Focalin XR® under the Par agreement.
The higher increased revenue for the three months ended August 31,
2019 is primarily due to the change in contract term with
Mallinckrodt that expired on August 31, 2019 compared to the
original ten-year term. Beginning in early 2018, we began to see a
significant impact from aggressive pricing by competitors,
resulting in a marked increase in gross-to-net deductions such as
wholesaler rebates, chargebacks and pricing adjustments. While the
gross-to-net deductions fluctuate on a quarter over quarter basis,
profit share payments for the last quarter has been consistent over
the same period in 2018.
Expenditures
for R&D for the three months ended August 31, 2019 were lower
by $1.7 million compared to the three months ended August 31, 2018.
The decrease is primarily due to significantly lower Biostudies and
patent litigation expenses partially offset by higher third-party
consulting fees.
Selling,
general and administrative expenses were $1.3 million for the three
months ended August 31, 2019 in comparison to $0.8 million for the
three months ended August 31, 2018, resulting in an increase of
$0.5 million. The increase is due to higher expenses related to
administrative costs and marketing cost, partially offset by a
decrease in wages and benefits.
The
Company had cash of $0.05 million as at August 31, 2019 compared to
$1.3 million as at May 31, 2019. The decrease in cash was mainly
due to expenditures for R&D and selling, general, and
administrative expenses which are partially offset by receipt from
Par and cash inflow provided from financing activities. The
decrease in cash during the three months ended August 31, 2019 was
mainly a result of our ongoing expenditures in R&D and selling,
general, and administrative expenses, which included increased
legal fees.
As
of August 31, 2019, our cash balance was $54,359. We currently
expect to satisfy our operating cash requirements from cash on hand
and quarterly profit share payments supplemented by proceeds from
equity issuances as necessary. The Company may need to obtain
additional funding prior to that time as we further the development
of our product candidates. Potential sources of capital may include
payments from licensing agreements, cost savings associated with
managing operating expense levels, equity and/or debt financings
and/or new strategic partnership agreements which fund some or all
costs of product development. We intend to utilize the capital
markets to bridge any funding shortfall and to provide capital to
continue to advance our most promising product candidates. Our
future operations are highly dependent upon our ability to source
additional capital to support advancing our product pipeline
through continued R&D activities and to fund any significant
expansion of our operations. Our ultimate success will depend on
whether our product candidates receive the approval of the FDA or
Health Canada and whether we are able to successfully market
approved products. We cannot be certain that we will be able to
receive FDA or Health Canada approval for any of our current or
future product candidates, that we will reach the level of sales
and revenues necessary to achieve and sustain profitability, or
that we can secure other capital sources on terms or in amounts
sufficient to meet our needs or at all.
There
can be no assurance that we will enter into 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, 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.
About Intellipharmaceutics
Intellipharmaceutics
International Inc. is a pharmaceutical company specializing in the
research, development and manufacture of novel and generic
controlled-release and targeted-release oral solid dosage drugs.
The Company's patented Hypermatrix™ technology is a multidimensional
controlled-release drug delivery platform that can be applied to a
wide range of existing and new pharmaceuticals.
Intellipharmaceutics has developed several drug delivery systems
based on this technology platform, with a pipeline of products
(some of which have received FDA approval) in various stages of
development. The Company has ANDA and NDA 505(b)(2) drug product
candidates in its development pipeline. These include the
Company’s Oxycodone ER
based on its proprietary nPODDDS™ novel Point Of Divergence Drug
Delivery System (for which an NDA has been filed with the FDA), and
Regabatin™ XR (pregabalin
extended-release capsules).
Cautionary Statement Regarding Forward-Looking
Information
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”,
“goals” ,“set to”, “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, 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 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 ANDAs and NDAs, challenges in securing
final FDA approval for our product candidates, including our
oxycodone hydrochloride extended release tablets 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 the "Risk Factors"
section of our latest annual information form, our latest Form
20-F, and our latest Form F-1 and F-3 registration statements
(including any documents forming a part thereof or incorporated by
reference therein), as amended, as well as 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 and 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.
Trademarks used herein are the property of their respective
holders.
Unless the context otherwise
requires, all references (i) to "we," "us," "our,"
"Intellipharmaceutics," and the "Company" refer to
Intellipharmaceutics International Inc. and its subsidiaries and
(ii) in this document 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 split which became
effective on each of Nasdaq and TSX at the open of market on
September 14, 2018. The
common shares of the Company are currently traded on the OTCQB and
the TSX.
Nothing contained in this document should 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.
The condensed
unaudited interim consolidated financial statements, accompanying
notes to the condensed unaudited interim consolidated financial
statements, and Management Discussion and Analysis for the three
and nine months ended August 31, 2019 will be accessible on
Intellipharmaceutics’ website at www.intellipharmaceutics.com
and will be available on SEDAR and EDGAR.
Summary
financial tables are provided below.
Intellipharmaceutics International Inc.
|
|
|
Condensed
unaudited interim consolidated balance sheets
|
|
|
As
at August 31, 2019 and November 30, 2018
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
$
|
$
|
Assets
|
|
|
Current
|
|
|
Cash
|
54,359
|
6,641,877
|
Accounts
receivable, net
|
96,027
|
239,063
|
Investment
tax credits
|
1,133,849
|
998,849
|
Prepaid
expenses, sundry and other assets
|
258,235
|
586,794
|
Inventory
|
219,928
|
251,651
|
|
1,762,398
|
8,718,234
|
|
|
|
Property
and equipment, net
|
2,400,276
|
2,755,993
|
|
4,162,674
|
11,474,227
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Accounts
payable
|
3,504,755
|
2,643,437
|
Accrued
liabilities
|
1,174,186
|
353,147
|
Employee
costs payable
|
236,449
|
222,478
|
Conversion
feature related to convertible debenture (Note 5)
|
129,685
|
-
|
Convertible
debenture
|
1,525,220
|
1,790,358
|
Deferred
revenue
|
-
|
300,000
|
|
6,570,295
|
5,309,420
|
|
|
|
Deferred
revenue
|
-
|
2,062,500
|
|
6,570,295
|
7,371,920
|
|
|
|
Shareholders' equity (deficiency)
|
|
|
Capital
stock
|
|
|
Authorized
|
|
|
Unlimited
common shares without par value
|
|
|
Unlimited
preference shares
|
|
|
Issued
and outstanding
|
|
|
22,085,856
common shares
|
45,561,222
|
44,327,952
|
(November
30, 2018 - 18,252,243)
|
|
|
Additional
paid-in capital
|
44,119,247
|
45,110,873
|
Accumulated
other comprehensive income
|
284,421
|
284,421
|
Accumulated
deficit
|
(92,372,511)
|
(85,620,939)
|
|
(2,407,621)
|
4,102,307
|
Contingencies
|
|
|
|
4,162,674
|
11,474,227
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of operations and
comprehensive loss
|
|
For
the three and nine months ended August 31, 2019 and
2018
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Revenue
|
|
|
|
|
Licensing
|
217,265
|
320,330
|
881,512
|
1,062,597
|
Up-front
fees
|
1,472,676
|
93,225
|
2,366,485
|
262,443
|
|
1,689,941
|
413,555
|
3,247,997
|
1,325,040
|
|
|
|
|
|
Cost of good sold
|
|
|
|
|
Cost
of goods sold
|
-
|
45,299
|
33,068
|
111,173
|
|
|
|
|
|
Gross Margin
|
1,689,941
|
368,256
|
3,214,929
|
1,213,867
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research
and development
|
1,625,353
|
3,324,221
|
5,412,653
|
7,783,549
|
Selling,
general and administrative
|
1,298,029
|
792,379
|
3,981,285
|
2,773,698
|
Depreciation
|
126,872
|
155,288
|
378,932
|
457,314
|
|
3,050,254
|
4,271,888
|
9,772,870
|
11,014,561
|
|
|
|
|
|
Loss
from operations
|
(1,360,313)
|
(3,903,632)
|
(6,557,941)
|
(9,800,694)
|
Net
foreign exchange (loss) gain
|
(23,767)
|
9,406
|
(10,138)
|
17,106
|
Interest
income
|
11
|
8
|
865
|
22
|
Interest
expense
|
(55,720)
|
(59,886)
|
(169,822)
|
(179,402)
|
Financing
cost
|
(14,536)
|
-
|
(14,536)
|
-
|
Net
loss and comprehensive loss
|
(1,454,325)
|
(3,954,104)
|
(6,751,572)
|
(9,962,968)
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
(0.07)
|
(0.91)
|
(0.32)
|
(2.49)
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
shares outstanding, basic and diluted
|
22,081,275
|
4,353,678
|
21,411,017
|
4,006,582
|
Intellipharmaceutics International Inc.
|
|
|
|
|
Condensed
unaudited interim consolidated statements of cash
flows
|
|
For
the three and nine months ended August 31, 2019 and
2018
|
|
|
|
|
(Stated
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
Net loss
|
(1,454,325)
|
(3,954,104)
|
(6,751,572)
|
(9,962,968)
|
Items
not affecting cash
|
|
|
|
|
Depreciation
|
125,989
|
155,288
|
378,932
|
457,314
|
Financing
cost
|
14,536
|
-
|
14,536
|
|
Stock-based
compensation
|
51,402
|
25,542
|
213,691
|
120,348
|
Deferred
share units
|
-
|
-
|
-
|
7,565
|
Accreted
interest on convertible debenture
|
8,813
|
16,369
|
25,011
|
48,510
|
Unrealized
foreign exchange loss (gain)
|
884
|
(14,882)
|
884
|
(11,365)
|
|
|
|
|
|
Change
in non-cash operating assets & liabilities
|
|
|
|
|
Accounts
receivable
|
198,798
|
182,558
|
143,036
|
426,279
|
Investment
tax credits
|
(45,000)
|
(45,000)
|
(135,000)
|
(135,001)
|
Inventory
|
-
|
(64,804)
|
31,723
|
(134,655)
|
Prepaid
expenses, sundry and other assets
|
159,159
|
(108,178)
|
328,559
|
(341,546)
|
Accounts
payable, accrued liabilities and employee costs
payable
|
1,319,326
|
2,594,283
|
1,696,326
|
3,329,225
|
Deferred
revenue
|
(1,469,716)
|
(75,000)
|
(2,362,500)
|
(225,000)
|
Cash
flows used in operating activities
|
(1,090,134)
|
(1,287,928)
|
(6,416,374)
|
(6,421,294)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Repayment
of principal on convertible debenture
|
-
|
-
|
(300,000)
|
-
|
Proceeds
from issuance of shares on exercise of 2018 Pre-Funded
Warrants
|
-
|
-
|
27,953
|
-
|
Proceed
from issuance of shares and warrants
|
-
|
-
|
-
|
5,300,000
|
2019
Debenture financing
|
140,800
|
-
|
140,800
|
-
|
Debenture
financing cost
|
(15,800)
|
-
|
(15,800)
|
-
|
Offering
costs
|
-
|
-
|
-
|
(618,689)
|
Cash
flows provided from financing activities
|
125,000
|
-
|
(147,047)
|
4,681,311
|
|
|
|
|
|
Investing activity
|
|
|
|
|
Purchase
of property and equipment
|
(10,684)
|
(15,358)
|
(24,097)
|
(99,690)
|
Cash
flows used in investing activities
|
(10,684)
|
(15,358)
|
(24,097)
|
(99,690)
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash
|
(975,818)
|
(1,303,286)
|
(6,587,518)
|
(1,839,673)
|
Cash,
beginning of period
|
1,030,177
|
1,360,674
|
6,641,877
|
1,897,061
|
|
|
|
|
|
Cash, end of period
|
54,359
|
57,388
|
54,359
|
57,388
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
Interest
paid
|
29,394
|
12,419
|
120,148
|
92,029
|
Taxes
paid
|
-
|
-
|
-
|
-
|
CONTACT INFORMATION
Company
Contact:
Intellipharmaceutics
International Inc.
Greg
Powell
Chief Financial
Officer
416.798.3001 ext.
106
investors@intellipharmaceutics.com
EXHIBIT
99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I,
Dr. Isa Odidi, Chief Executive Officer, of Intellipharmaceutics
International Inc., certify the following
1.
Review: I have reviewed the interim financial statements
and interim MD&A (together, the "interim filings") of
Intellipharmaceutics International Inc. (the "issuer") for the
interim period ended August 31, 2019.
2.
No misrepresentations:
Based on my knowledge, having
exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having
exercised reasonable diligence, the interim financial statements
together with the other financial information included in the
interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the
interim filings.
4.
Responsibility:
The issuer's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109
Certification of
Disclosure in Issuers' Annual and Interim
Filings, for the
issuer.
5.
Design: Subject to the limitations, if any, described in
paragraphs 5.2 and 5.3, the issuer's other certifying officer and I
have, as at the end of the period covered by the interim
filings
(a)
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that
(i)
material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings
are being prepared; and
(ii)
information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP.
5.1
Control Framework:
The control framework the issuer's
other certifying officer and I used to design the issuer's ICFR is
the Committee of Sponsoring Organizations Internal Control
Framework.
5.2
ICFR –
material weakness relating to design: The
issuer has disclosed in its interim MD&A for each material
weakness relating to design existing at the end of the interim
period
(a)
a
description of the material weakness;
(b)
the
impact of the material weakness on the issuer’s financial
reporting and its ICFR; and
(c)
the
issuer’s current plans, if any, or any actions already
undertaken, for remediating the material weakness.
6.
Reporting changes in
ICFR: The issuer has disclosed
in its interim MD&A any change in the issuer's ICFR that
occurred during the period beginning on June 1, 2018 and ended on
August 31, 2019 that has materially affected, or is reasonably
likely to materially affect, the issuer's ICFR.
Date: October 11,
2019
/s/ Isa Odidi
Dr.
Isa Odidi
Chief
Executive Officer
EXHIBIT 99.5
FORM 52-109F2
CERTIFICATION
OF INTERIM FILINGS
FULL
CERTIFICATE
I,
Greg Powell, Chief Financial Officer, of Intellipharmaceutics
International Inc., certify the following
1.
Review: I have reviewed the interim financial statements
and interim MD&A (together, the "interim filings") of
Intellipharmaceutics International Inc. (the "issuer") for the
interim period ended August 31, 2019.
2.
No misrepresentations:
Based on my knowledge, having
exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having
exercised reasonable diligence, the interim financial statements
together with the other financial information included in the
interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the
interim filings.
4.
Responsibility:
The issuer's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109
Certification of
Disclosure in Issuers' Annual and Interim
Filings, for the
issuer.
5.
Design: Subject to the limitations, if any, described in
paragraphs 5.2 and 5.3, the issuer's other certifying officer and I
have, as at the end of the period covered by the interim
filings
(a)
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that
(i)
material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings
are being prepared; and
(ii)
information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's
GAAP.
5.1
Control Framework:
The control framework the issuer's
other certifying officer and I used to design the issuer's ICFR is
the Committee of Sponsoring Organizations Internal Control
Framework.
5.2
ICFR –
material weakness relating to design: The
issuer has disclosed in its interim MD&A for each material
weakness relating to design existing at the end of the interim
period
(a)
a
description of the material weakness;
(b)
the
impact of the material weakness on the issuer’s financial
reporting and its ICFR; and
(c)
the
issuer’s current plans, if any, or any actions already
undertaken, for remediating the material weakness.
6.
Reporting changes in
ICFR: The issuer has disclosed
in its interim MD&A any change in the issuer's ICFR that
occurred during the period beginning on June 1, 2018 and ended on
August 31, 2019, that has materially affected, or is reasonably
likely to materially affect, the issuer's ICFR.
Date: Ocotber 11,
2019
/s/ Greg
Powell
Greg
Powell
Chief
Financial Officer
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