EXHIBIT
99.1
2019 First
Quarter
Management
Discussion and Analysis
MANAGEMENT
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2019
The
following Management Discussion and Analysis
(“MD&A”) should be read in conjunction with the
February 28, 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 April 15, 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.
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.
Page 1
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;
Page 2
●
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
Page 3
●
risks arising from
the ability and willingness of our third-party commercialization
partners to provide documentation that may be required to support
information on revenues earned by us from those commercialization
partners.
Additional
risks and uncertainties relating to us and our business can be
found in our reports, public disclosure documents and other filings
with the securities commissions and other regulatory bodies in
Canada and the U.S. which are available on www.sedar.com and www.sec.gov. The forward-looking
statements reflect our current views with respect to future events,
and are based on what we believe are reasonable assumptions as of
the date of this document. We disclaim any intention and have no
obligation or responsibility, except as required by law, to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
This
discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that
any conclusion reached herein will necessarily be indicative of our
actual operating results.
CORPORATE DEVELOPMENTS
●
On April 12, 2019,
we and Mallinckrodt LLC ("Mallinckrodt") mutually agreed to
terminate our license and commercial supply agreement, effective no
later than August 31, 2019. Under the terms of our mutual
agreement, Mallinckrodt has been released from certain obligations
under the license and commercial supply agreement as of April 12,
2019. The Company is in discussions with other parties who are
interested in marketing and distributing our products which have
been licensed under the agreement.
●
In March 2019, we
announced that the FDA acknowledged receipt of our resubmission of
the Oxycodone ER NDA filed on February 28, 2019. The FDA informed
us that it considers the resubmission a complete response to the
September 22, 2017 action letter it issued in respect of the NDA.
The FDA also assigned a Prescription Drug User Fee Act
(“PDUFA”) goal date of August 28, 2019.
●
As more fully
described below (under “NASDAQ DELISTING AND OTCQB
QUOTATION”), in March 2019, the Nasdaq Hearings Panel (the
“Nasdaq Panel”) determined to delist our shares from
Nasdaq based upon our non-compliance with the $1.00 minimum bid
price requirement, as set forth in Nasdaq Listing Rule 5550(a)(2).
The suspension of trading on Nasdaq took effect at the open of
business on March 21, 2019. Our shares began trading on the OTCQB,
which is operated by OTC Markets Group Inc., commencing on March
21, 2019.
●
On February 21, 2019, we and our CEO, Dr. Isa
Odidi (“Defendants”), were served with a Statement of
Claim filed in the Superior Court of Justice of Ontario
(“Court”) for a proposed class action under the Ontario
Class Proceedings Act (“Action”). The Action was
brought by Victor Romita, the proposed representative plaintiff
(“Plaintiff”), on behalf of a class of Canadian persons
(“Class”) who traded shares of the Company during the
period from February 29, 2016 to July 26, 2017
(“Period”). The Statement of Claim, under the
caption Victor Romita v.
Intellipharmaceutics International Inc. and Isa
Odidi, asserts that the
Defendants knowingly or negligently made certain public statements
during the Period that contained or omitted material facts
concerning Oxycodone ER abuse-deterrent oxycodone hydrochloride
extended release tablets. The Plaintiff alleges that he and the
Class suffered loss and damages as a result of their trading in the
Company’s shares during the Period. The Plaintiff seeks,
among other remedies, unspecified damages, legal fees and court and
other costs as the Court may permit. On February 26, 2019, the
Plaintiff delivered a Notice of Motion seeking the required
approval from the Court, in accordance with procedure under the
Ontario Securities Act, to allow the statutory claims under the
Ontario Securities Act to proceed with respect to the claims based
upon the acquisition or disposition of the Company’s shares
on the TSX during the Period. No date has been set for the hearing
of the Notice of Motion. No date has been set for the hearing of
the certification application. The Defendants intend to vigorously
defend the action and have filed a Notice of Intent to
Defend.
Page 4
●
In February 2019,
we received tentative approval from the FDA for our ANDA for
desvenlafaxine extended-release tablets in the 50 and 100 mg
strengths. This product is a generic equivalent of the branded
product Pristiq® sold in the U.S. by Wyeth Pharmaceuticals,
LLC.
●
In January 2019, we
announced that we had commenced a research and development
(“R&D”) program of pharmaceutical cannabidiol
(“CBD”) based products. As part of this R&D
program, we filed provisional patent applications with the United
States Patent and Trademark Office pertaining to the delivery and
application of cannabinoid-based therapeutics, began talks with
potential commercialization partners in the cannabidiol industry,
and identified a potential supplier of CBD. We hold a Health Canada
Drug Establishment License (or DEL) and a dealer's license under
the Narcotics Control Regulations (“NCR”). Under the
NCR license, we are currently authorized to possess, produce, sell
and deliver drug products containing various controlled substances,
including CBD, in Canada.
●
On April 4, 2019, a
tentative approval from TSX was received for a proposed refinancing
of the 2013 Debenture (as defined below), subject to certain
conditions being met. As a result of the proposed refinancing, the
principal amount owing under the 2013 Debenture will be refinanced
by a new debenture (the “New Debenture”). If issued,
the New Debenture will have a principal amount of $1,050,000, and
mature on November 1, 2019, bear interest at a rate of 12% per
annum and be convertible into 1,779,661 common shares of the
Company at a conversion price of $0.59 per common share. Dr. Isa
Odidi and Dr. Amina Odidi, who are shareholders, directors, and
executive officers of the Company, will be the holders of the New
Debenture.
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.
Page 5
BUSINESS OVERVIEW
On
October 22, 2009, Intellipharmaceutics Ltd. and Vasogen Inc.
completed a court-approved plan of arrangement and merger (the
“IPC Arrangement Agreement”), resulting in the
formation of the Company, which is incorporated under the laws of
Canada and the common shares of which are currently traded on the
TSX and OTCQB.
We are
a pharmaceutical company specializing in the research, development
and manufacture of novel and generic controlled-release and
targeted-release oral solid dosage drugs. Our patented
Hypermatrix™ technology is a multidimensional
controlled-release drug delivery platform that can be applied to
the efficient development of a wide range of existing and new
pharmaceuticals. Based on this technology platform, we have
developed several drug delivery systems and a pipeline of products
(some of which have received FDA approval) and product candidates
in various stages of development, including ANDAs filed with the
FDA (and one ANDS filed with Health Canada) and one NDA filing, in
therapeutic areas that include neurology, cardiovascular,
gastrointestinal tract (“GIT”), diabetes and
pain.
In
November 2005, we entered into a license and commercialization
agreement with Par Pharmaceutical, Inc. (“Par”) (as
amended on August 12, 2011 and September 24, 2013, the “Par
agreement”), pursuant to which we granted Par an exclusive,
royalty-free license to make and distribute in the U.S. all
strengths of our generic Focalin XR® (dexmethylphenidate
hydrochloride extended-release) capsules for a period of 10 years
from the date of commercial launch (which was November 19, 2013).
Under the Par agreement, we made a filing with the FDA for approval
to market generic Focalin XR® capsules in various strengths in
the U.S. (the “Company ANDA”), and are the owner of
that Company ANDA, as approved in part by the FDA. We retain the
right to make and distribute all strengths of the generic product
outside of the U.S. Calendar quarterly profit-sharing payments for
its U.S. sales under the Company ANDA are payable by Par to us as
calculated pursuant to the Par agreement. Within the purview of the
Par agreement, Par also applied for and owns an ANDA pertaining to
all marketed strengths of generic Focalin XR® (the “Par
ANDA”), and is now approved by the FDA, to market generic
Focalin XR® capsules in all marketed strengths in the U.S. As
with the Company ANDA, calendar quarterly profit-sharing payments
are payable by Par to us for its U.S. sales of generic Focalin
XR® under the Par ANDA as calculated pursuant to the Par
agreement.
We
received final approval from the FDA in November 2013 under the
Company ANDA to launch the 15 and 30 mg strengths of our generic
Focalin XR® capsules. Commercial sales of these strengths were
launched immediately by our commercialization partner in the U.S.,
Par. In January 2017, Par launched the 25 and 35 mg strengths of
its generic Focalin XR® capsules in the U.S., and in May 2017,
Par launched the 10 and 20 mg strengths, complementing the 15 and
30 mg strengths of our generic Focalin XR® marketed by Par.
The FDA granted final approval under the Par ANDA for its generic
Focalin XR® capsules in the 5, 10, 15, 20, 25, 30, 35 and 40
mg strengths, and subsequently Par launched the remaining 5 and 40
mg strengths. Under the Par agreement, we receive quarterly profit
share payments on Par’s U.S. sales of generic Focalin
XR®. We currently expect revenues from sales of the generic
Focalin XR® capsules to continue to be impacted by ongoing
competitive pressures in the generic market. There can be no
assurance whether revenues from this product will improve going
forward or that any recently launched strengths will be
successfully commercialized. We depend significantly on the actions
of our marketing partner Par in the prosecution, regulatory
approval and commercialization of our generic Focalin XR®
capsules and on its timely payment to us of the contracted calendar
quarterly payments as they come due.
In
February 2019, we received tentative approval from the FDA for our
ANDA for desvenlafaxine extended-release tablets in the 50 and 100
mg strengths. This product is a generic equivalent of the branded
product Pristiq® sold
in the U.S. by Wyeth Pharmaceuticals, LLC. There can be no
assurance that our desvenlafaxine extended-release tablets in the
50 and 100 mg strengths will receive final FDA approval or, if
approved, that they will be successfully commercialized and produce
significant revenue for us. We previously announced that we had
entered into a license and commercial supply agreement with
Mallinckrodt, which granted Mallinckrodt, subject to its terms, an
exclusive license to market, sell and distribute in the U.S. the
Company's desvenlafaxine extended-release tablets (generic
Pristiq®). Among other things, the agreement provides for the
Company to have a profit sharing arrangement with respect to the
licensed product. We agreed to manufacture and supply the licensed
product exclusively for Mallinckrodt on a cost-plus basis, and
Mallinckrodt agreed that we will be its sole supplier of the
licensed product marketed in the U.S. On April 12, 2019, we and
Mallinckrodt mutually agreed to terminate the Mallinckrodt
agreement (as defined below) effective no later than August 31,
2019. Under the terms of our mutual agreement, Mallinckrodt has
been released from certain obligations under the license and
commercial supply agreement as of April 12, 2019. We are in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
Page 6
In
November 2018, we received final approval from the FDA for our ANDA
for venlafaxine hydrochloride extended-release capsules in the
37.5, 75 and 150 mg strengths. The approved product is a generic
equivalent of the branded product Effexor® XR sold in the U.S.
by Wyeth Pharmaceuticals, LLC. We are actively exploring the best
approach to maximize our commercial returns from this approval.
There can be no assurance that our generic Effexor XR® for the
37.5, 75 and 150 mg strengths will be successfully commercialized
and produce significant revenue for us.
In
February 2017, we received final approval from the FDA for our ANDA
for metformin hydrochloride extended release tablets in the 500 and
750 mg strengths, a generic equivalent for the corresponding
strengths of the branded product Glucophage® XR sold in the
U.S. by Bristol-Myers Squibb. The Company is aware that several
other generic versions of this product are currently available that
serve to limit the overall market opportunity for this product. We
have been continuing to evaluate options to realize commercial
returns on this product, particularly in international markets. In
November 2018, we announced that we entered into two exclusive
licensing and distribution agreements with pharmaceutical
distributors in Vietnam and the Philippines pursuant
to which the distributors were granted the exclusive right, subject
to regulatory approval, to import and market our generic
Glucophage® XR in Vietnam and the Philippines, respectively.
There can be no assurance as to when and if such product will
receive regulatory approval for the sale in Vietnam or the
Philippines. Moreover, there can be no assurance that our metformin
hydrochloride extended release tablets will be successfully
commercialized and produce significant revenues for
us.
In February 2016, we received final approval from the FDA of our
ANDA for generic Keppra XR® (levetiracetam extended-release)
tablets for the 500 and 750 mg strengths. Our generic Keppra
XR® is a generic equivalent for the corresponding strengths of
the branded product Keppra XR® sold in the U.S. by UCB, Inc.,
and is indicated for use in the treatment of partial onset seizures
associated with epilepsy. We
are aware that several other generic versions of this product are
currently available that serve to limit the overall market
opportunity. We have been actively exploring the best approach to
maximize our commercial returns from this approval and have been
looking at several international markets where, despite lower
volumes, product margins are typically higher than in the U.S. In
November 2018, we announced that we entered into two exclusive
licensing and distribution agreements with pharmaceutical
distributors in Vietnam and the Philippines pursuant to which the
distributors were granted the exclusive right, subject to
regulatory approval, to import and market our generic Keppra
XR® in Vietnam and the Philippines, respectively. There can be
no assurance as to when and if such product will receive regulatory
approval for the sale in Vietnam or the Philippines. Moreover,
there can be no assurance that our generic Keppra XR® for the
500 and 750 mg strengths will be successfully
commercialized and produce significant revenues for
us.
In May
2017, we received final approval from the FDA for our ANDA for
quetiapine fumarate extended-release tablets in the 50, 150, 200,
300 and 400 mg strengths. Our approved product is a generic
equivalent for the corresponding strengths of the branded product
Seroquel XR® sold in the U.S. by AstraZeneca Pharmaceuticals
LP (“AstraZeneca”). Pursuant to a settlement agreement
between us and AstraZeneca dated July 30, 2012, we were permitted
to launch our generic versions of the 50, 150, 200, 300 and 400 mg
strengths of generic Seroquel XR®, on November 1, 2016,
subject to FDA final approval of our ANDA for those strengths. The
Company manufactured and shipped commercial quantities of all
strengths of generic Seroquel XR® to our marketing and
distribution partner Mallinckrodt, and Mallinckrodt launched all
strengths in June 2017.
In
October 2016, we announced a license and commercial supply
agreement with Mallinckrodt, granting Mallinckrodt an exclusive
license to market, sell and distribute in the U.S. the following
extended release drug product candidates (the "licensed products")
which have either been launched (generic Seroquel XR) or for which
we have ANDAs filed with the FDA (the “Mallinckrodt
agreement”):
■
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®) –
Approved and launched
■
Desvenlafaxine
extended-release tablets (generic Pristiq®) – ANDA Under
FDA Review (tentatively approved)
■
Lamotrigine
extended-release tablets (generic Lamictal® XR™) –
ANDA under FDA Review
Under
the terms of the agreement with Mallinckrodt, we received a
non-refundable upfront payment of $3 million in October 2016. In
addition, the agreement also provides for a profit sharing
arrangement with respect to these licensed products (which includes
up to $11 million in cost recovery payments that are payable on
future sales of licensed product). We agreed to manufacture and
supply the licensed products exclusively for Mallinckrodt on a cost
plus basis. The Mallinckrodt agreement contains customary terms and
conditions for an agreement of this kind and was subject to early
termination in the event we did not obtain FDA approvals of the
Mallinckrodt licensed products by specified dates, or pursuant to
any one of several termination rights of each party. On
April 12, 2019, we and Mallinckrodt mutually agreed to terminate
the Mallinckrodt agreement, effective no later than August 31,
2019. Under the terms of our mutual agreement, Mallinckrodt has
been released from certain obligations under the license and
commercial supply agreement as of April 12, 2019. The Company is in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
Page 7
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. 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.
Page 8
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 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.
Page 9
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.
Page 10
|
Generic name
|
Brand
|
Indication
|
Stage
of Development(1)`
|
Regulatory Pathway
|
Market
Size (in millions)(2)
|
Rights(3)
|
|
Dexmethylphenidate hydrochloride extended-release
capsules
|
Focalin
XR®
|
Attention deficit
hyperactivity disorder
|
Received final
approval for 5, 10,15, 20, 25, 30, 35 and 40 mg strengths from
FDA(4)
|
ANDA
|
$ 854
|
Intellipharmaceutics
and Par (US)
Philippines rights
subject to licensing and distribution agreement
|
|
Levetiracetam extended-release tablets
|
Keppra XR®
|
Partial onset
seizures for epilepsy
|
Received final
approval for the 500 and 750 mg strengths from FDA
|
ANDA
|
$ 127
|
Intellipharmaceutics
Philippines and Vietnamese rights
subject
to licensing and distribution agreements
|
|
Venlafaxine hydrochloride extended-release capsules
|
Effexor XR®
|
Depression
|
Received final
approval for 37.5, 75 and 150 mg strengths from FDA
|
ANDA
|
$ 781
|
Intellipharmaceutics
|
|
Pantoprazole sodium delayed- release tablets
|
Protonix®
|
Conditions
associated with gastroesophageal reflux disease
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
$ 369
|
Intellipharmaceutics
|
|
Metformin hydrochloride extended-release tablet
|
Glucophage® XR
|
Management of type
2 diabetes
|
Received final
approval for 500 and 750 mg strengths from FDA
|
ANDA
|
$
387
(500
and 750 mg only)
|
Intellipharmaceutics
Philippines and
Vietnamese
rights subject
to licensing and distribution agreements
|
|
Quetiapine fumarate extended-release tablets
|
Seroquel XR®
|
Schizophrenia,
bipolar disorder & major depressive disorder
|
Received final FDA
approval for all 5 strengths. ANDS under review by Health
Canada
|
ANDA
|
$ 178
|
Intellipharmaceutics
and Mallinckrodt
(US)(5)
Philippines,
Malaysian and Vietnamese rights subject
to licensing and distribution agreements
|
|
Lamotrigine extended-release tablets
|
Lamictal® XR™
|
Anti-convulsant for
epilepsy
|
ANDA application
for commercialization approval for 6 strengths under review by
FDA
|
ANDA
|
$ 522
|
Intellipharmaceutics
and Mallinckrodt
(US)(5)
|
|
Desvenlafaxine extended-release tablets
|
Pristiq®
|
Depression
|
Received tentative
approval for the 50 and 100 mg strengths from FDA
|
ANDA
|
$ 278
|
Intellipharmaceutics
and Mallinckrodt (US)(5)
|
|
Trazodone hydrochloride extended-release tablets
|
Oleptro™
|
Depression
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
N/A(6)
|
Intellipharmaceutics
|
|
Carvedilol phosphate extended- release capsules
|
Coreg CR®
|
Heart failure,
hypertension
|
Late-stage
development
|
ANDA
|
64
|
Intellipharmaceutics
|
Page 11
|
Oxycodone hydrochloride controlled-release capsules
|
OxyContin®
|
Pain
|
NDA application
accepted February 2017 and under review by FDA
|
NDA
505(b)(2)
|
1,442
|
Intellipharmaceutics
Philippines rights subject
to licensing and distribution agreement
|
|
Pregabalin extended-release capsules
|
Lyrica®
|
Neuropathic
pain
|
IND application
submitted in August 2015
|
NDA
505(b)(2)
|
5,435
|
Intellipharmaceutics
|
|
Ranolazine extended-release tablets
|
Ranexa®
|
Chronic
angina
|
ANDA application
for commercialization approval for 2 strengths under review by
FDA
|
ANDA
|
1,014
|
Intellipharmaceutics
|
|
Oxycodone hydrochloride
immediate release tablets (IPCI006)
|
Roxicodone®
|
Pain
|
IND application
submitted in November 2018
|
NDA
505(b)(2)
|
623
|
Intellipharmaceutics
|
Notes:
(1)
There can be no
assurance as to when, or if at all, the FDA or Health Canada will
approve any product candidate for sale in the U.S. or Canadian
markets.
(2)
Represents sales
for all strengths, unless otherwise noted, for the 12 months ended
February 2019 in the U.S., including sales of generics in TRx MBS
Dollars, which represents projected new and refilled prescriptions
representing a standardized dollar metric based on
manufacturer’s published catalog or list prices to
wholesalers, and does not represent actual transaction prices and
does not include prompt pay or other discounts, rebates or
reductions in price. Source: Symphony Health Solutions Corporation.
The information attributed to Symphony Health Solutions Corporation
herein is provided as is, and Symphony makes no representation
and/or warranty of any kind, including but not limited to, the
accuracy and/or completeness of such information.
(3)
For information
regarding the Par agreement and the licensing and
distribution agreements with pharmaceutical distributors in
Malaysia, Vietnam and the Philippines, see the “Business
Overview” and “Other Potential Products and
Markets” sections. There can be no assurance as to when, or
if at all, any of our products or product candidates, as the case
may be, will receive regulatory approval for sale in the
Philippines, Malaysia or Vietnam. For unpartnered products, we are
exploring licensing agreement opportunities or other forms of
distribution. While we believe that licensing agreements are
possible, there can be no assurance that any can be
secured.
(4)
Includes a Company
ANDA final approval for our 15 and 30 mg strengths, and a Par ANDA
final approval for their 5, 10, 15, 20, 25, 30, 35 and 40 mg
strengths. Profit sharing payments to us under the Par agreement
are the same irrespective of the ANDA owner.
(5)
On April 12, 2019, we
and Mallinckrodt mutually agreed to terminate our license and
commercial supply agreement effective no later than August 31,
2019. Under the terms of our mutual agreement, Mallinckrodt has
been released from certain obligations under the license and
commercial supply agreement as of April 12, 2019. We are in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement. For information regarding the Mallinckrodt
agreement, see the “Business Overview”
section.
(6)
Trazodone
Hydrochloride extended-release tablets are not currently being
marketed in the United States.
We
typically select products for development that we anticipate could
achieve FDA or Health Canada approval for commercial sales several
years in the future. However, the length of time necessary to bring
a product to the point where the product can be commercialized can
vary significantly and depends on, among other things, the
availability of funding, design and formulation challenges, safety
or efficacy, patent issues associated with the product, and FDA and
Health Canada review times.
Dexmethylphenidate
Hydrochloride – Generic Focalin
XR®
(a registered trademark of the
brand manufacturer)
Dexmethylphenidate
hydrochloride, a Schedule II restricted product (drugs with a high
potential for abuse) in the U.S., is indicated for the treatment of
attention deficit hyperactivity disorder. In November 2005, we
entered into the Par agreement pursuant to which we granted Par an
exclusive, royalty-free license to make and distribute in the U.S.
all of our FDA approved strengths of our generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules for a
period of 10 years from the date of commercial launch (which was
November 19, 2013). We retain the right to make and distribute all
strengths of the generic product outside of the U.S. Calendar
quarterly profit-sharing payments for its U.S. sales of all
strengths of generic Focalin XR® are payable by Par to us as
calculated pursuant to the Par agreement.
We
received final approval from the FDA in November 2013 under the
Company ANDA to launch the 15 and 30 mg strengths of our generic
Focalin XR® capsules.
Commercial sales of these strengths were launched immediately by
our commercialization partner in the U.S., Par. Our 5, 10, 20 and
40 mg strengths were also then tentatively FDA approved, subject to
the right of Teva Pharmaceuticals USA, Inc. to 180 days of generic
exclusivity from the date of first launch of such products. In
January 2017, Par launched the 25 and 35 mg strengths of its
generic Focalin XR® capsules in the
U.S., and in May 2017, Par launched the 10 and 20 mg strengths,
complementing the 15 and 30 mg strengths of our generic Focalin
XR®
marketed by Par. In November 2017, Par launched the remaining 5 and
40 mg strengths providing us with the full line of generic Focalin
XR® strengths available in the U.S. market.
Page 12
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.
Page 13
In
November 2018, we announced that we entered into three exclusive
licensing and distribution agreements with pharmaceutical
distributors in Malaysia, Vietnam and the Philippines pursuant to which the distributors
were granted the exclusive right, subject to regulatory approval,
to import and market our generic Seroquel XR® in Malaysia,
Vietnam and the Philippines, respectively. Under the terms of the
agreements, the distributors will be required to purchase a minimum
yearly quantity of our generic Seroquel XR®. The multi-year
agreements are each subject to early termination. There can be no assurance as to when
and if such product will receive regulatory approval for the sale
in Malaysia, Vietnam or the Philippines or that, if so approved,
the product will be successfully commercialized there and produce
significant revenues for us.
Desvenlafaxine succinate extended-release tablets – Generic
Pristiq® (a registered trademark of the brand
manufacturer)
In
February 2019, we received tentative approval from the FDA for our
ANDA for desvenlafaxine extended-release tablets in the 50 and 100
mg strengths. This product is a generic equivalent of the branded
product Pristiq® sold
in the U.S. by Wyeth Pharmaceuticals, LLC. There can be no
assurance that our desvenlafaxine extended-release tablets in the
50 and 100 mg strengths will receive final FDA approval or, if
approved, that they will be successfully commercialized and produce
significant revenue for us. We previously announced that we had
entered into the Mallinckrodt agreement, which granted
Mallinckrodt, subject to its terms, an exclusive license to market,
sell and distribute in the U.S. the Company's desvenlafaxine
extended-release tablets (generic Pristiq®). Among other
things, the agreement provides for the Company to have a profit
sharing arrangement with respect to the licensed product.
Intellipharmaceutics agreed to manufacture and supply the licensed
product exclusively for Mallinckrodt on a cost-plus basis, and
Mallinckrodt agreed that Intellipharmaceutics will be its sole
supplier of the licensed product marketed in the U.S. On April 12,
2019, we and Mallinckrodt mutually agreed to terminate the
Mallinckrodt agreement, effective no later than August 31, 2019.
Under the terms of our mutual agreement, Mallinckrodt has been
released from certain obligations under the license and commercial
supply agreement as of April 12, 2019. The Company is in
discussions with other parties who are interested in marketing and
distributing our products which have been licensed under the
Mallinckrodt agreement.
Oxycodone ER (Abuse Deterrent Oxycodone Hydrochloride
Extended-Release Tablets)
One of
our non-generic products under development is our Oxycodone ER
(abuse deterrent oxycodone hydrochloride extended release tablets)
product candidate, intended as an abuse and alcohol-deterrent
controlled-release oral formulation of oxycodone hydrochloride for
the relief of pain. Our Oxycodone ER is a new drug candidate, with
a unique long acting oral formulation of oxycodone intended to
treat moderate-to-severe pain when a continuous, around the clock
opioid analgesic is needed for an extended period of time. The
formulation is intended to present a significant barrier to
tampering when subjected to various forms of physical and chemical
manipulation commonly used by abusers. It is also designed to
prevent dose dumping when inadvertently co-administered with
alcohol. Dose dumping is the rapid release of an active ingredient
from a controlled-release drug into the blood stream that can
result in increased toxicity, side effects, and a loss of efficacy.
Dose dumping can result by consuming the drug through crushing,
taking with alcohol, extracting with other beverages, vaporizing or
injecting. In addition, when crushed or pulverized and hydrated,
the proposed extended release formulation is designed to coagulate
instantaneously and entrap the drug in a viscous hydrogel, which is
intended to prevent syringing, injecting and snorting. Our
Oxycodone ER formulation is difficult to abuse through the
application of heat or an open flame, making it difficult to inhale
the active ingredient from burning.
In
March 2015, we announced the results of three definitive open
label, blinded, randomized, cross-over, Phase I pharmacokinetic
clinical trials in which our Oxycodone ER was compared to the
existing branded drug OxyContin® (extended release oxycodone
hydrochloride) under single dose fasting, single dose steady-state
fasting and single dose fed conditions in healthy volunteers. We
had reported that the results from all three studies showed that
Oxycodone ER met the bioequivalence criteria (90% confidence
interval of 80% to 125%) for all matrices, i.e., on the measure of
maximum plasma concentration or Cmax, on the measure of area under
the curve time (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.
Page 14
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.
Page 15
On July
6, 2018, the court issued a so-called “Markman” claim
construction ruling on the first case and the October 22, 2018
trial date remained unchanged. We believe that we have
non-infringement and/or invalidity defenses to all of the asserted
claims of the subject patents in both of the cases and will
vigorously defend against these claims.
On July
24, 2018, the parties to the case mutually agreed to and did have
dismissed without prejudice the infringement claims related to the
Grünenthal ‘060 patent. The Grünenthal ‘060
patent is one of the six patents included in the original
litigation case, however, the dismissal does not by itself result
in a termination of the 30-month litigation stay.
On
October 4, 2018, the parties mutually agreed to postpone the
scheduled court date pending a case status conference scheduled for
December 17, 2018. At that time, further trial scheduling and other
administrative matters were postponed pending the Company’s
resubmission of the Oxycodone ER NDA to the FDA, which was made on
February 28, 2019. On January 17, 2019, the court issued a
scheduling order in which the remaining major portions are
scheduled. The trial is scheduled for June 2020.
In June
2017, we announced that a joint meeting of the Anesthetic and
Analgesic Drug Products Advisory Committee and Drug Safety and Risk
Management Advisory Committee of the FDA (together, the
“Advisory Committees”) meeting was scheduled for July
26, 2017 to review our NDA for Oxycodone ER. The submission
requested that our Oxycodone ER product candidate include product
label claims to support the inclusion of language regarding
abuse-deterrent properties for the intravenous route of
administration.
In July
2017, the Company announced that the FDA Advisory Committees voted
22 to 1 in finding that the Company’s NDA for Oxycodone ER
should not be approved at this time. The Advisory Committees also
voted 19 to 4 that the Company had not demonstrated that Oxycodone
ER has properties that can be expected to deter abuse by the
intravenous route of administration, and 23 to 0 that there was not
sufficient data for Oxycodone ER to support inclusion of language
regarding abuse-deterrent properties in the product label for the
intravenous route of administration. The Advisory Committees
expressed a desire to review the additional safety and efficacy
data for Oxycodone ER that may be obtained from human abuse
potential studies for the oral and intranasal routes of
administration.
In
September 2017, the Company received a Complete Response Letter
(“CRL”) from the FDA for the Oxycodone ER NDA. In its
CRL, the FDA provided certain recommendations and requests for
information, including that Intellipharmaceutics complete Category
2 and Category 3 studies to assess the abuse-deterrent properties
of Oxycodone ER by the oral and nasal routes of administration. The
FDA also requested additional information related to the inclusion
of the blue dye in the Oxycodone ER formulation, which is intended
to deter abuse. The FDA also requested that Intellipharmaceutics
submit an alternate proposed proprietary name for Oxycodone ER. The
FDA determined that it could not approve the application in its
present form. The FDA granted our request for an extension to
February 28, 2019 to resubmit our NDA for Oxycodone ER under
section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic
Act.
In
February 2018, the Company met with the FDA to discuss the
above-referenced CRL for Oxycodone ER, including issues related to
the blue dye in the product candidate. Based on those discussions,
the product candidate will no longer include the blue dye. The blue
dye was intended to act as an additional deterrent if Oxycodone ER
is abused and serve as an early warning mechanism to flag potential
misuse or abuse. The FDA confirmed that the removal of the blue dye
is unlikely to have any impact on formulation quality and
performance. As a result, the Company will not be required to
repeat in vivo bioequivalence studies and pharmacokinetic studies
submitted in the Oxycodone ER NDA. The FDA also indicated that,
from an abuse liability perspective, Category 1 studies will not
have to be repeated on Oxycodone ER with the blue dye
removed.
The
abuse liability studies for the intranasal route of abuse commenced
in May 2018 with subject screening, while the studies to support
abuse-deterrent label claims for the oral route of abuse commenced
in June 2018. The clinical part of both studies has now been
completed.
In
March 2019, the FDA acknowledged receipt of our resubmission of the
Oxycodone ER NDA filed on February 28, 2019. The FDA had informed
the Company that it considers the resubmission a complete response
to the September 22, 2017 action letter it issued in respect of the
NDA. The FDA also assigned a PDUFA goal date of August 28,
2019.
Page 16
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.
Page 17
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.
Page 18
The
multi-year agreements with the Malaysian and Vietnamese
distributors are each subject to early termination. Financial terms
of the agreements have not been disclosed. There can be no
assurance as to when or if any of our products will receive
regulatory approval for sale in Malaysia or Vietnam or that, if so
approved, the products will be successfully commercialized there
and produce significant revenues for the Company.
Additionally,
in January 2018 we announced we had commenced a R&D program of
CBD based products. As part of this R&D program, we filed
multiple provisional patent applications with the United States
Patent and Trademark Office pertaining to the delivery and
application of cannabinoid-based therapeutics, began talks with
potential commercialization partners in the cannabidiol industry,
and identified a potential supplier of CBD. The patent filings,
together with certain of our already issued drug delivery patents,
are intended to form the basis of the development of a pipeline of
novel controlled-release product candidates with CBD as the main
active ingredient.
SELECTED FINANCIAL INFORMATION
|
|
For the three months ended
|
|
|
|
February 28,
|
February 28,
|
|
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
|
|
$
|
$
|
|
Revenue:
|
343,536
|
334,518
|
|
Expenses:
|
3,464,788
|
3,425,780
|
|
Net
loss from operations
|
(3,154,320)
|
(3,091,262)
|
|
Net
loss per common share
|
|
|
|
Basic and diluted
|
(0.16)
|
(0.91)
|
|
|
As
at
|
|
|
|
February 28,
2019
|
November 30,
2018
|
|
|
$
|
$
|
|
Cash
|
2,821,669
|
6,641,877
|
|
Total
assets
|
7,552,520
|
11,474,227
|
|
|
|
|
|
Convertible
debentures
|
1,498,295
|
1,790,358
|
|
Total
liabilities
|
6,645,934
|
7,371,920
|
|
Shareholders'
equity
|
906,586
|
4,102,307
|
|
Total
liabilities and shareholders' equity
|
7,552,520
|
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 months ended February 28,
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.
Page 19
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 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.
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).
Page 20
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 months ended
February 28, 2019, the Company recognized $75,000 (three months
ended February 28, 2018 - $75,000) of revenue based on a
straight-line basis over the expected term of the Mallinckrodt
agreement of 10 years. As of February 28, 2019, the Company has
recorded a deferred revenue balance of $2,287,500 (November 30,
2018 - $2,362,500) relating to the underlying contracts, of which
$300,000 (November 30, 2018 - $300,000) is considered a current
portion of deferred revenue.
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 February 28, 2019, the Company
had raw materials inventories of $123,875 (November 30, 2018 -
$144,659), work in process of $96,053 (November 30, 2018 - $73,927)
and finished goods inventory of $Nil (November 30, 2018 - $33,065)
relating to the Company’s generic Seroquel XR® product.
The recoverability of the cost of any pre-launch inventories with a
limited shelf life is evaluated based on the specific facts and
circumstances surrounding the timing of the anticipated product
launch.
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.
Page 21
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.
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
August 2016, the FASB issued Accounting Standards Update
(“ASU”) No. 2016-15, Statement of Cash Flows (Topic
230) Classification of Certain Cash Receipts and Cash Payments,
which makes eight targeted changes to how cash receipts and cash
payments are presented and classified in the Statement of Cash
Flows. ASU 2016-15 became effective on May 1, 2018. The Company
adopted ASU 2016-15 and the amendments did not have any material
impact on the Company’s financial position, results of
operations, cash flows or disclosures.
In May
2014, the FASB issued ASU No. 2014-09, ASC 606, which establishes a
single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers. Under ASC 606,
revenue is recognized at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for
transferring control of goods or services to a customer. The
principles in ASC 606 provide a more structured approach to
measuring and recognizing revenue. As of December 1, 2018, the
Company has adopted ASC 606 using the modified retrospective method
and has elected to apply the standard retrospectively only to
contracts that are not completed contracts at the date of initial
application. The adoption of ASC 606 did not have an impact on the
date of transition and did not have a material impact on the
Company’s condensed unaudited interim consolidated financial
statements for the three months ended February 28,
2019.
In
January 2016, the FASB issued ASU No. 2016-01, which makes limited
amendments to the guidance in U.S. GAAP on the classification and
measurement of financial instruments. The new standard
significantly revises an entity’s accounting related to (1)
the classification and measurement of investments in equity
securities and (2) the presentation of certain fair value changes
for financial liabilities measured at fair value. It also amends
certain disclosure requirements associated with the fair value of
financial instruments. The Company has adopted ASU No. 2016-01
effective December 1, 2018 and the adoption did not have an impact
on the date of transition or any material impact on the
Company’s condensed unaudited interim consolidated financial
statements for the three months ended February 28,
2019.
In
August 2016, the FASB issued ASU 2017-01 that changes the
definition of a business to assist entities with evaluating when a
set of transferred assets and activities is a business. The
guidance requires an entity to evaluate if substantially all of the
fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets; if
so, the set of transferred assets and activities is not a business.
ASU 2017-01 also requires a business to include at least one
substantive process and narrows the definition of outputs by more
closely aligning it with how outputs are described in ASC 606.1.
ASU 2017-01 is effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within
those years. Early adoption is permitted. The Company adopted ASU
2017-01 effective December 1, 2018 and the amendments did not have
any material impact on the Company’s financial position,
results of operations, cash flows or disclosures.
In May
2017, the FASB issued ASU 2017-09 in relation to Compensation
—Stock Compensation (Topic 718), Modification Accounting. The
amendments provide guidance on changes to the terms or conditions
of a share-based payment award, which require an entity to apply
modification accounting in Topic 718. The amendments are effective
for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early
adoption is permitted, including adoption in any interim period,
for (1) public business entities for reporting periods for which
financial statements have not yet been issued and (2) all other
entities for reporting periods for which financial statements have
not yet been made available for issuance. The amendments should be
applied prospectively to an award modified on or after the adoption
date. The Company adopted ASU 2017-09 effective December 1, 2018
and the amendments did not have any material impact on the
Company’s financial position, results of operations, cash
flows or disclosures.
Page 22
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 months ended
February 28, 2019 and 2018.
|
|
For the three months ended
|
|
|
|
|
|
February 28,
|
February 28,
|
|
|
|
|
2019
|
2018
|
Change
|
|
|
|
(unaudited)
|
(unaudited)
|
|
|
|
|
$
|
$
|
$
|
%
|
|
Revenue:
|
|
|
|
|
|
Licensing
|
264,551
|
252,272
|
12,279
|
5%
|
|
Up-front fees
|
78,985
|
82,246
|
(3,261)
|
-4%
|
|
|
343,536
|
334,518
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
33,068
|
-
|
33,068
|
N/A
|
|
|
310,468
|
334,518
|
(24,050)
|
-7%
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Research and development
|
2,132,261
|
2,264,128
|
(131,867)
|
-6%
|
|
Selling, general and administrative
|
1,207,243
|
1,013,470
|
193,773
|
19%
|
|
Depreciation
|
125,284
|
148,182
|
(22,898)
|
-15%
|
|
|
3,464,788
|
3,425,780
|
39,008
|
1%
|
|
|
|
|
|
|
|
Loss
from operations
|
(3,154,320)
|
(3,091,262)
|
(63,058)
|
2%
|
|
Net
foreign exchange (loss) gain
|
(11,332)
|
25
|
(11,357)
|
-45428%
|
|
Interest
income
|
11
|
-
|
11
|
N/A
|
|
Interest
expense
|
(58,808)
|
(58,351)
|
(457)
|
1%
|
|
Net
loss for the period
|
(3,224,449)
|
(3,149,588)
|
(74,861)
|
2%
|
Page 23
Three months ended February 28, 2019 compared to the three months
ended February 28, 2018
Revenue
The
Company recorded revenues of $343,536 for the three months ended
February 28, 2019 versus $334,518 for the three months ended
February 28, 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 agreement.
The increase in revenues in the three months ended February 28,
2019 compared to the three months ended February 28, 2018 is
primarily due to slightly higher profit share payments from sales
of generic Focalin XR® capsules in the U.S. 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.
Cost of goods sold
The
Company recorded cost of goods sold of $33,068 for the three months
ended February 28, 2019 versus $Nil for the three months ended
February 28, 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 February 28, 2019 were lower
by $131,867 compared to the three months ended February 28, 2018.
The decrease is primarily due to significantly lower patent
litigation expenses partially offset by higher third party
consulting fees.
In the
three months ended February 28, 2019, we recorded $3,501 of
expenses for stock-based compensation for R&D employees
compared to $11,039 for the three months ended February 28,
2018.
After
adjusting for the stock-based compensation expenses discussed
above, expenditures for R&D for the three months ended February
28, 2019 were lower by $124,329 compared to the three months ended
February 28, 2018. The decrease was mainly due to the decrease in
material purchases and patent and litigation expenses, and was
partially offset by higher third party consulting fees and a one
time employee incentive.
Selling, General and
Administrative
Selling,
general and administrative expenses were $1,207,243 for the three
months ended February 28, 2019 in comparison to $1,013,470 for the
three months ended February 28, 2018, resulting in an increase of
$193,773. 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 three months ended February 28, 2019 were $853,911 in
comparison to $498,776 in the three months ended February 28, 2018.
The increase for the three months ended February 28, 2019 was due
to the increase in professional and legal fees.
Page 24
Expenditures
for wages and benefits for the three months ended February 28, 2019
were $228,211 in comparison to $343,208 in the three months ended
February 28, 2018. For the three months ended February 28, 2019, we
recorded a decrease of $1,227 against expense for stock-based
compensation compared to an expense of $20,649 for the three months
ended February 28, 2018. After adjusting for the stock-based
compensation expenses, expenditures for wages for the three months
ended February 28, 2019 were lower by $93,121 compared to the three
months ended February 28, 2018.
Marketing
costs for the three months ended February 28, 2019 were $94,466 in
comparison to $134,516 in the three months ended February 28, 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 three months ended February 28, 2019 were $30,655 in
comparison to $36,970 for the three months ended February 28, 2018.
The decrease is due to lower facility operating
expenses.
Depreciation
Depreciation
expenses for the three months ended February 28, 2019 were $125,284
in comparison to $148,182 in the three months ended February 28,
2018.
Foreign Exchange Gain
Foreign
exchange loss was $11,332 for the three months ended February 28,
2019 in comparison to a gain of $25 in the three months ended
February 28, 2018. The foreign exchange loss for the three months
ended February 28, 2019 was due to the weakening of the U.S. dollar
against the Canadian dollar during the three months ended February
28, 2019 as the exchange rates changed to $1.00 for C$1.3169 as at
February 28, 2019 from $1.00 for C$1.3301 as at November 30, 2018.
The nominal foreign exchange gain for the three months ended
February 28, 2018 was due to the relative movement of the U.S.
dollar against the Canadian dollar during the three months ended
February 28, 2018 as the exchange rates changed only slightly to
$1.00 for C$1.2809 as at February 28, 2018 from $1.00 for C$1.2888
as at November 30, 2017.
Interest Expense
Interest
expense for the three months ended February 28, 2019 was $58,808 in
comparison to $58,351 in the three months ended February 28, 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
February 28, 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%.
Net Loss
The
Company recorded net loss for the three months ended February 28,
2019 of $3,224,449 or $0.16 per common share, compared with a net
loss of $3,149,588 or $0.91 per common share for the three months
ended February 28, 2018. In the three months ended February 28,
2019, the lower net loss is attributed to the 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. In the three months ended February 28,
2018, the net loss was attributed to 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 R&D expenses.
Page 25
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.
|
|
|
|
Loss per share
|
|
|
|
Revenue
|
Net
loss
|
Basici
|
Dilutedi
|
|
Quarter
Ended
|
$
|
$
|
$
|
$
|
|
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)
|
|
August
31, 2017
|
1,189,739
|
(2,550,314)
|
(0.83)
|
(0.83)
|
|
May
31, 2017
|
2,001,512
|
(1,805,329)
|
(0.59)
|
(0.59)
|
(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 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.
|
|
For the three months ended
|
|||
|
|
February 28,
|
February 28,
|
|
|
|
|
2019
|
2018
|
Change
|
|
|
|
(unaudited)
|
(unaudited)
|
|
|
|
|
$
|
$
|
$
|
%
|
|
Cash
flows used in operating activities
|
(3,542,872)
|
(1,588,010)
|
(1,954,862)
|
123%
|
|
Cash
flows provided from financing activities
|
(273,546)
|
-
|
(273,546)
|
N/A
|
|
Cash
flows used in investing activities
|
(3,790)
|
(38,825)
|
35,035
|
-90%
|
|
Decrease
in cash
|
(3,820,208)
|
(1,626,835)
|
(2,193,373)
|
135%
|
|
Cash,
beginning of period
|
6,641,877
|
1,897,061
|
4,744,816
|
250%
|
|
Cash,
end of period
|
2,821,669
|
270,226
|
2,551,443
|
944%
|
Page 26
The
Company had cash of $2,821,669 as at February 28, 2019 compared to
$270,226 as at February 28, 2018. The increase in cash was mainly
due to the cash receipts provided from financing activities derived
from the Company’s two registered direct offerings in March
2018, the 2018 Debenture Financing in September 2018 and an
underwritten public offering in October 2018 (described below),
offset by ongoing expenditures in R&D and selling, general and
administrative expenses.
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 amount 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 February 28, 2019, net cash flows used in
operating activities increased to $3,542,872 as compared to net
cash flows used in operating activities for the three months ended
February 28, 2018 of $1,588,010. The increase was primarily a
result of the higher loss from operations, an increase in prepaid
expenses, and accrued liabilities, partially offset by a decrease
in accounts payable.
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 months ended February 28,
2019 and the three months ended February 28, 2018, R&D expense
was $2,132,261, and $2,264,128, respectively. The decrease was
mainly due to the decrease in material purchases and patent and
litigation expenses, and offset by higher third party consulting
fees and a one time employee incentive.
For the
three months ended February 28, 2019, net cash flows used in
financing activities were $273,546, compared to $Nil for the three
months ended February 28, 2018. Net cash flows used in financing
activities in the three months ended February 28, 2019, related to
the issuance of 2,643,334 common
shares on exercise of 2018 Pre-Funded Warrants issued as part of
the October 2018 financing for gross proceeds of $26,454 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 months ended February 28, 2019, net cash flows used in
investing activities of $3,790 related mainly to the purchase of
computer equipment. For the three months ended February 28, 2018
net cash flows used in investing activities of $38,825 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.
Page 27
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 February 28, 2019, our cash balance was $2.8
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. 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 will be refinanced
by the New Debenture. If issued, the New Debenture will have a
principal amount of $1,050,000, and will mature on November 1,
2019, bear interest at a rate of 12% per annum and be convertible
into 1,779,661 common shares of the Company at a conversion price
of $0.59 per common share. Dr. Isa Odidi and Dr. Amina Odidi, who
are shareholders, directors, and executive officers of the Company,
will be the holders of the New Debenture.
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
February 28, 2019 the Company had 21,925,577 common shares issued
and outstanding, which is an increase of 3,673,334 when compared to
November 30, 2018. The number of shares outstanding increased as a
result of the issuance of 2,643,334 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.
The number of options outstanding as of February 28, 2019 is
553,651, a decrease of 2,000 from November 30, 2018, due to the
forfeiture of 2,000 options during the three months ended February
28, 2019. The warrants outstanding as of February 28, 2019
represent 23,751,551 common shares issuable upon the exercise of
23,890,290 outstanding warrants, which represents a decrease of
2,643,334 common shares (2,643,334 warrants) from November 30,
2018, due to the exercise of 2,643,334 Pre-Funded Warrants to
purchase 2,643,334 common shares during the three months ended
February 28, 2019. The number of deferred share units outstanding
as of February 28, 2019 is 10,279. As of April 15, 2019, the number
of shares outstanding is 22,075,577.
Page 28
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 February 28, 2018. 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 $3.1 million at February 28, 2019 from
November 30, 2018, mainly as a result of an increase in accrued
liabilities, offset by decreases in cash, accounts payable 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.
Page 29
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 will be refinanced
by the New Debenture. If issued, the New Debenture will have a
principal amount of $1,050,000, and will mature on November 1,
2019, bear interest at a rate of 12% per annum and be convertible
into 1,779,661 common shares of the Company at a conversion price
of $0.59 per common share. Dr. Isa Odidi and Dr. Amina Odidi, who
are shareholders, directors, and executive officers of the Company,
will be the holders of the New Debenture.
On
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.
CAPITAL EXPENDITURES
Total
capital expenditures in the three months ended February 28, 2019
were $3,790 compared to $38,825 in the three months ended February
28, 2018. Capital expenditures in the first quarter of 2019 related
primarily to the purchase of computer equipment. Capital
expenditures in the first quarter of 2018 related primarily to the
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.
|
|
Less
than
|
3 to
6
|
6 to
9
|
9
months
|
Greater
than
|
|
|
|
3
months
|
months
|
months
|
to 1
year
|
1
year
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Third
parties
|
|
|
|
|
|
|
|
Accounts
payable
|
1,769,675
|
-
|
-
|
-
|
-
|
1,769,675
|
|
Accrued
liabilities
|
875,590
|
-
|
-
|
-
|
-
|
875,590
|
|
Related
parties
|
|
|
|
|
|
|
|
Employee
costs payable
|
214,874
|
-
|
-
|
-
|
-
|
214,874
|
|
Convertible
debentures (Note 7)
|
1,073,649
|
12,603
|
12,466
|
12,329
|
525,479
|
1,636,526
|
|
Total
contractual obligations
|
3,933,788
|
12,603
|
12,466
|
12,329
|
525,479
|
4,496,665
|
Page 30
CONTINGENCIES AND LITIGATION
From
time to time, we may be exposed to claims and legal actions in the
normal course of business. As at February 28, 2019, and continuing
as at April 15, 2019, 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 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.
Page 31
On
October 4, 2018, the parties mutually agreed to postpone the
scheduled court date pending a case status conference scheduled for
December 17, 2018. At that time, further trial scheduling and other
administrative matters were postponed pending the Company’s
resubmission of the Oxycodone ER NDA to the FDA, which was made on
February 28, 2019. On January 17, 2019, the court issued a
scheduling order in which the remaining major portions are
scheduled. The trial is scheduled for June 2020.
On
April 4, 2019, the U.S. Federal Circuit Court of Appeal affirmed
the invalidity of one Purdue Oxycontin patent. This patent claimed
a core matrix containing PEO and magnesium stearate, which is then
heated. The invalidity ruling reduces another patent from the
original litigation. 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 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.
Discovery is ongoing and is likely to continue until late 2019. The
Company and the other defendants intend to vigorously defend
themselves against the remainder of the claims asserted in the
consolidated action.
On February 21, 2019, the Company and its CEO, Dr. Isa Odidi
(“Defendants”), were served with a Statement of Claim
filed in the Superior Court of Justice of Ontario
(“Court”) for a proposed class action under the Ontario
Class Proceedings Act (“Action”). The Action was
brought by Victor Romita, the proposed representative plaintiff
(“Plaintiff”), on behalf of a class of Canadian persons
(“Class”) who traded shares of the Company during the
period from February 29, 2016 to July 26, 2017
(“Period”). The Statement of Claim, under the
caption Victor Romita v.
Intellipharmaceutics International Inc. and Isa
Odidi, asserts that the
Defendants knowingly or negligently made certain public statements
during the Period that contained or omitted material facts
concerning Oxycodone ER abuse-deterrent oxycodone hydrochloride
extended release tablets. The Plaintiff alleges that he and the
Class suffered loss and damages as a result of their trading in the
Company’s shares during the Period. The Plaintiff seeks,
among other remedies, unspecified damages, legal fees and court and
other costs as the Court may permit. On February 26, 2019, the
Plaintiff delivered a Notice of Motion seeking the required
approval from the Court, in accordance with procedure under the
Ontario Securities Act, to allow the statutory claims under the
Ontario Securities Act to proceed with respect to the claims based
upon the acquisition or disposition of the Company’s shares
on the 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.
Page 32
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 will be refinanced by the New Debenture.
If issued, the New Debenture will have a principal amount of
$1,050,000, and will mature on November 1, 2019, bear interest at a
rate of 12% per annum and be convertible into 1,779,661 common
shares of the Company at a conversion price of $0.59 per common
share. Dr. Isa Odidi and Dr. Amina Odidi, who are shareholders,
directors, and executive officers of the Company, will be the
holders of the New Debenture.
On
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 February 28, 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 February 28, 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 February 28, 2019.
Page 33
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
February 28, 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 February 28, 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 February 28, 2019,
the Company was not involved in any material unconsolidated SPE
transactions.
Page 34
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®, 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 February 28, 2019. We had an accumulated deficit of
$88,845,388 as of February 28, 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.
Page 35
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.