IntelGenx Technologies Corp. (IGXT) Swayampakula Ramakanth,...

Initiating CoverageHealthcare

June 30, 2014

IntelGenx Technologies Corp. (IGXT)Rating: Buy

Swayampakula Ramakanth, Ph.D.212-356-0544

[email protected]

Opportunity Awaits The Brave Heart; Initiating With a Buy Rating

Stock Data 06/27/2014Price $0.70Exchange OTCPrice Target $2.0052-Week High $1.1852-Week Low $0.47Enterprise Value (MM) $38Market Cap (MM) $44Public Market Float (MM) 57.5Shares Outstanding (MM) 63.23 Month Avg Volume 360,645Balance Sheet MetricsCash (MM) $5.2Total Debt (MM) $0.0Total Cash/Share $0.09Book Value/Share $0.09

EPS DilutedFull Year - Dec 2013A 2014E 2015E1Q (0.01) (0.01)A (0.01)2Q 0.00 (0.01) (0.01)3Q (0.01) (0.02) (0.02)4Q (0.01) (0.02) (0.02)FY (0.03) (0.06) (0.06)FY P/E NM NM NMRevenue ($M)Full Year - Dec 2013A 2014E 2015E1Q 0.16 0.22A 0.212Q 0.55 0.18 0.253Q 0.10 0.19 0.334Q 0.14 0.21 0.38FY 0.95 0.81 1.16

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Initiating coverage with a BUY rating and a price target of $2.00per share. At the outset, the shares of IntelGenx seem to be high-risk as the management needs to resolve issues with their currentmarketed product and two products that are under FDA review.However, we consider the shares as high-risk/high-reward as webelieve that the company has potential to receive multiple streamsof revenue post 2014, and the management is working diligently toalleviate the current situation. IntelGenx, operating in the $70 billiondrug delivery market, utilizes its three oral platforms to develop genericor follow-on therapeutics. The business strategy is to develop productsusing their patent-protected technologies and license the commercialrights, lowering both regulatory and commercial risks. This strategyhas been validated by the launch of Forfivo XL for the treatment ofmajor depressive disorder (estimated WW market of $9 billion), withpartner, Edgemont in October 2012. Additionally, partnerships existfor five products in the pipeline. Two of them: INT0008 (migraine,estimated WW market of $3 billion) and INT0027 (opioid dependence,estimated WW market of $2 billion) are under FDA review andcould potentially be launched in 2016. Further validation came asan extension of the current Par Pharma collaboration to developtwo additional products for undisclosed indications in January 2014.However, management needs to resolve the INT0008 related supplyissue and IP related legal issues for Forfivo and INT0027, and webelieve they are making progress. Investors could expect to gainclarity on these matters potentially by the end of 2014.

Par Pharma collaboration extension is the trump card. Thecompanies are yet to disclose either the indications or the financialterms of the new agreement. Considering that Par markets highbarrier to entry generics and niche innovative proprietary products, weestimate that the combined market for the two products could be multi-billion dollars. Assuming similar financial terms as with INT0027, weexpect peak royalties in the range of $50-$60 million. We believe thefirst of these two products could be filed for approval during late 2014-early 2015. Revenues from this new collaboration are not accountedfor and hence represent a meaningful upside.

Multiple shots on the goal. IntelGenx is developing a thin filmgeneric to Cialis (2013 WW sales approximately $2 billion). Thereare two additional partnerships with products in development: INT001for hypertension (a $40 billion market) and INT0024 for idiopathicpulmonary fibrosis (a $2 billion market). With no clarity on financialterms, we are not accounting for revenues from these products.

Valuation. We value IntelGenx shares using a discounted P/E multipleand a DCF analysis. Assuming a 25x P/E multiple to our 2025 EPSestimate and a 15% discount rate anticipating significant growth from2016, we value the shares at $2.24 per share. Applying a 2% terminalgrowth rate to the company’s 2025 free cash flow and discounting over10.5 periods at a rate of 12% considering its validated technologiesand execution risk we obtain a fair value of $2.01 per share. Averagingthe results of these two methods and rounding, we obtain a 12-monthprice target of $2.00 per share.

For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 21 - 22 of this report

INVESTMENT SUMMARY

IntelGenx is a drug delivery company incorporated in Delaware since July1999. The company, addresses

the $70 billion worldwide oral drug delivery market, specializing in developing novel products based on

its proprietary technologies. IntelGenx’s business strategy is to develop products using its novel

technologies and license the commercial rights. Hence, the management is able to lower the regulatory

and commercial risk while gaining funds for pipeline development. IntelGenx has developed three

delivery platform technologies: VersaFilm, an oral film, VersaTab, a multilayer tablet, and AdVersa, a

mucoadhesive tablet. The company successfully developed and launched Forfivo, a controlled release

high dose bupropion tablet using VersaTab technology in 2012. Forfivo is marketed by partner,

Edgemont Pharmaceuticals. The company has two thin film products, INT0008 and INT0027, which are

currently under FDA review. INT0027 is a generic of Reckitt Benckiser’s (RB; not rated) Suboxone for

opioid dependence treatment and INT0008 is an oral film product containing rizatriptan, the active

ingredient of Merck’s Maxalt for the treatment of migraine. INT0008 received a complete response letter

from the FDA in February 2014, to which the company has responded in March 2014. However, the

supplier of the raw material is under the scrutiny of the FDA for certain compliance issues independently.

The management is in the process of identifying a second supplier which could alleviate the issue but

push the time line for final approval to the end of 2015. Regarding INT0027, Reckitt Benckiser, the

innovator has filed a lawsuit against IntelGenx and Par for infringing on its intellectual property

triggering the 30-month stay since the date of ANDA filing in July 2013. We assume conservatively that

INT0027 will enter the market in H1 2016. We believe each of the three products, Firfivo, INT0008, and

INT0027 have a peak market potential in the range of $30-$130 million. Assuming mid-high teen royalty

on net sales, we estimate revenues to grow from $948,000 in 2013 to approximately $39 million in 2025.

IntelGenx has been successful in securing partnerships as it is evident from the five agreements structured

to date. Additionally, the company gained validation for its oral film technology with Par Pharmaceuticals

extending the initial collaboration beyond INT0027 to two other products. Neither the clinical indications

nor the financial terms of the new agreement have been disclosed. Considering the INT0008 and INT0027

related supply and legal issues and uncertainty regarding future collaborations, we consider the shares of

IntelGenx a high-risk high-reward investment as the probability of attaining profitability by 2016 is high

should the supply and legal issues be resolved.

VALUATION

We value the shares of IntelGenx using a discounted price-earnings multiple and a discounted cash flow

analysis. Assuming a 25x price-earnings multiple to our 2025 earnings estimate based on our anticipation

of significant growth coming from Forfivo, INT0008 and INT0027 and assuming a 15% discount rate

considering the execution risk, we value the shares at $2.24 per diluted share. Applying a 2% terminal

growth rate to the company’s free cash flow in 2025 and discounting over 10.5 periods at a discount rate

of 12% considering the validated technologies and execution risk we obtain a fair value of $2.01 per

diluted share. Averaging the results of these two methods, we obtain a 12-month price target of $2.13

which we round it to $2.00 per share.

CATALYSTS/ MILESTONES FOR 2014-2015

Acceptance of ANDA for INT0027 triggering a milestone payment from Par (Q4 2014)

Identify a second supplier for rizatriptan (H2 2014)

Clarity on Forfivo litigation with Wockhardt (H2 2014)

Filing of the second drug in collaboration with Par (late 2014/ early 2015)

Clarity on INT0027 litigation progress by Par (2014/ 2015)

IntelGenx Technologies Corp. June 30, 2014

H.C. WAINWRIGHT & CO. EQUITY RESEARCH 2

RISK ANALYSIS

In addition to risks associated with emerging platform technologies, specific additional risks to be

considered are as follows:

Partnership Risk

IntelGenx relies on its partners to pay for all or part of the research and development expenses associated

with new product development. If the partners face financial difficulties, decide to switch to a different

drug delivery technology, unable to achieve sales milestones, or terminate development, the management

will be under pressure to generate cash flows.

Manufacturing Risk

The management and their partners utilize third parties for raw material and to manufacture the film

products. If the third parties do not comply with the FDA Good Manufacturing Practice or other

regulatory requirements, the company will face supply interruptions that can lead to a decline or no sales.

Commercial Risk

The management has limited experience in marketing and selling pharmaceutical products and relies

heavily on their partners for commercializing their products. If the partner does not establish a

competitive sales force and/or places less than needed efforts in commercialization, the company may be

unable to achieve their financial goals.

Financial Risk

IntelGenx has not achieved profitability to date and could potentially continue to incur operating losses in

the future. Additional capital raises to maintain operations will likely dilute ownership interest. The

management may not be successful in maintaining and increasing liquidity and the price of IntelGenx’s

stock could be volatile. IntelGenx’s shares could be subject to additional foreign exchange risks.

Legal and Intellectual Property Risk

IntelGenx currently holds a total of four US patents and have applied for five US patents to protect its

unique technologies. Management could potentially fail to protect their intellectual property and

proprietary technology and may infringe the proprietary rights of third parties in order to operate. Such an

event could adversely affect its business.



INVESTMENT HIGHLIGHTS

Diversified Portfolio of Drug Delivery Technologies

The worldwide drug delivery market is believed to be about $70 billion. Oral drug delivery

technologies are believed to represent about 40% of that market. IntelGenx has developed proprietary

versions of three different oral technologies, VersaFilm the oral thin film, VersaTab the multilayer

tablet, and AdVersa the mucoadhesive tablet technology.

Oral Thin Film is a Validated Technology

Oral thin film technology was initially used for dispensing consumer health products. As consumer

acceptance of thin films has increased, the pharmaceutical industry has embraced the technology for

life cycle management and to provide convenience to the patient. This was further validated by the

success of Reckitt Benckiser’s prescription film, Suboxone and reported sales of approximately $1.3

billion in 2013. IntelGenx is in the process of commercializing a Suboxone generic in collaboration

with Par Pharmaceuticals.

Successful in Generating Partnerships

The success of technology development companies, such as IntelGenx resides in their ability to

partner successfully in order to commercialize the technology through product applications.

IntelGenx to date has forged multiple partnerships to help grow a pipeline of development products.

Currently, IntelGenx has five partnerships – Par Pharmaceuticals, Red Hill Biopharma (RDHL, not

rated), Edgemenont, Pacific Therapeutics (PCFTF, NR), and Dava Pharmaceuticals with products in

development that could potentially have a estimated peak revenue sales in the range of $30 - $130

million. In general, the partners pay for all development costs and have the burden of

commercialization. In return for its technology contribution, IntelGenx receives on average a mid -

high teens royalty rate on net sales of the product.

Technology Validation: Three Development Programs with Par Pharmaceuticals

IntelGenx signed their first agreement with Par Pharmaceuticals to develop a generic to Reckitt

Benckiser’s Suboxone, the oral thin film product for treatment of opioid dependence. Currently the

product is under FDA review, and we estimate a peak sales potential of nearly $130 million. We

believe based on the success of that product development, Par extended their collaboration with

addition of two new products for two indications, which currently are not disclosed.

Deep Pipeline Provides Multiple Shots on Goal

IntelGenx currently has one marketed product, two late-stage products under FDA review, and six

products in various stages of development. Our current financial model only accounts for revenues

from Firfivo, the marketed product and the two products under regulatory review. Hence, there is

upside if any of the current development projects accelerate or become part of a license agreement.

High Risk High Reward

Forfivo has not met management’s expectations and is also facing generic challenge from Wockhardt

(WBIO, NR). Additionally INT0008 and INT0027 have either supply or legal challenges. We believe

management is diligently working to resolve these issues and could be potentially successful during

the next 12-18 months making the stock more attractive in the long term, in our opinion.



SCIENTIFIC OVERVIEW AND BACKGROUND

IntelGenx’s Platform Technologies

IntelGenx has developed three platform technologies, VersaFilm (Oral film technology), VersaTab

(multilayer tablet technology), and Adversa (mucoadhesive tablet technology) to develop controlled

released formulations of approved drugs. Controlled release systems are designed to allow administration

of the drug over a longer period of time. Controlled release formulations in general do not have wide

fluctuations in blood concentrations and hence are safer and tolerable compared to traditional dosage

forms. These characteristics are both desirable by the physicians as well as patients, thus increasing

compliance.

Oral Film

Most drugs are administered orally. Different modes of oral administration have been developed over the

years. Hence, there have been numerous technology improvements starting from the conventional dosage

forms such as tablets and capsules to modified release dosage forms to oral disintegrating tablets to the

current oral disintegrating films. The physical properties of the film aid in easy transportation, handling

and storage. 1 Oral films contain a water soluble polymer that permits the dosage form to be hydrated by

the saliva, adhere to the mucosa and to disintegrate within seconds. On disintegration of the polymer, the

drug is released allowing oral mucosa to absorb. As the mucosa is made of a thin membrane with large

veins the drug gets absorbed rapidly achieving an instant high bioavailability. 2

Exhibit 1: Structure of oral mucosa

Source: www.maths-in-medicine.org/uk/2012/transmucosal-drug-delivery/description.pdf accessed June

18, 2014

1 Dixit, R. P. and Puthli, S. P. Oral strip technology: Overview and future potential. J. Control. Release 2009; 139

(2): 94 2 Barnhart, S.D. and Sloboda, M.S. The Future of dissolvable films. Drug Delivery Technol. 2007; 7 (8), 34-37



Success in Consumer Market Leads to Opportunities in Prescription Market

Oral film technology was initially used in the consumer products. With the successful launch of Listerine

breath strips in 2001, the technology gained utility in the pharmaceutical industry with delivery of

vitamins and OTC products. Novartis (NVS, NR) introduced the first therapeutic oral film product,

Chloraseptic Sore Throat Relief Strip that contained the active pharmaceutical ingredient, benzocaine in

2003. Par Pharmaceuticals’ proprietary products division, Strativa Pharmaceuticals launched Zuplenz,

the first FDA approved prescription oral film product utilizing the proprietary technology from MonoSol

Rx in July, 2010. Zuplenz is an oral film formulation of ondansetron for the prevention of chemotherapy-

induced, radiotherapy-induced, postoperative nausea and vomiting. MonoSol also brought the second oral

film product to the market in collaboration with Reckitt Benckiser with the approval of Suboxone, a

sublingual film formulation of buprenorphine/naloxone for the treatment of opioid dependence in August

2010. Suboxone 2013 sales were approximately $1.4 billion.

Oral film products provide several advantages such as: 1) the rapid disintegration and dissolution in the

oral cavity which with a large surface area aids in improved onset of action, lower dose requirement and

an improved efficacy; 2) the flexible structure allows for easy transportation, handling, and storage; 3)

convenient in that it can be consumed without requirement of any measurement device or water; 4) direct

systemic administration avoiding the impact of first-pass effect; and finally 5) commercially beneficial as

it provides an opportunity for patent extensions, life cycle management and product differentiation. 3

IntelGenx’s Oral Film Technology: VersaFilm

The proprietary oral film technology developed by IntelGenx is called VersaFilm. The thin polymeric

film is made up of materials that are safe and approved by the FDA for use in food, pharmaceutical and

cosmetic products. The various technical features and advantages of VersaFilm are provided below

(Exhibit 2). VersaFilm technology can be used to deliver drugs either through the buccal cavity or the

gastrointestinal cavity.

Exhibit 2: Technical features and advantages of VersaFilm

Source: Company Reports

3 Nagaraju T. et al., Comprehensive Review On Oral Disintegrating Films. Current Drug Delivery 2013; 10: 96-108

Technical Features

Drug loading up to 40mg

Can disintegrate over a wide time range from 30 seconds to 10 minutes

Versatile onset of action depending on application from 15 minutes to several hours

Can be placed above or below the tongues

Advantages

Ability to deliver volatile drugs

Adjustable onset of action

Convenient and discrete administration

Life cycle management

Flavors and textures can be adjusted

Portability



IntelGenx has utilized the VersaFilm technology to develop five products (Exhibit 3) which are in various

stages of development.

Exhibit 3: Products based on VersaFilm

Source: Company Reports

Mucoadhesive Drug Delivery

Delivering drug with greater efficacy and attaining a higher bioavailability has led to inventing different

delivery systems. One such attempt by a group of scientists led to the identification of the concept of

mucoadhesion in the 1980’s. Bioadhesion is defined as a state in which two materials, one of which is a

biological system, are held together for long periods of time. 4 In mucoadhesion, the mucus membrane is

the biological system. Research over several decades has led to identification of different mucoadhesive

polymers with efficacy to bind to the mucus tissue in the eye, nose, vagina, and mouth and allowing for

sustained release of drug substances.

The mucus membrane is the moist layer of cells that line the walls of various body cavities such as the

gastrointestinal and respiratory tracts. The membrane is made of a connective tissue layer that is covered

by an epithelial layer that is kept moist by the presence of a mucus layer. The epithelium is made up of

either a single or multiple layers of cells. The single layered epithelium contains goblet cells that secrete

mucus directly onto the surface whereas the multi-layered epithelium is surrounded by special glands,

such as the salivary glands that secrete mucus on to the epithelial surface. The mucus, which is a gel like

substance, contains mucin glycoproteins, lipids, inorganic salts, and water. The mucin glycoproteins

provide the gel-like characteristic to the mucus along with the adhesive property.

Exhibit 4: Interaction of a mucoadhesive drug with GI mucous membane

Source: www.pharmainfo.net/reviews/mucosal-drug-delivery-review accessed June 19, 2014

4 Vinod K.R. et al., Critical Review on Mucoadhesive Drug Delivery Systems, Hygeia.J.D. Med. 2012; 4(1): 7-28

Product Indication Partner Development Phase

INT0008 Migraine RedHill Filed

INT0027 Opioid dependence Par Filed

INT0007 Erectile dysfunction None Pilot study

INT0036 CNS None Preclinical

INT0037 Undisclosed Par Preclinical



Mucoadhesive dosage forms are the preferred method of delivery to meet certain treatment requirements

and/or to overcome some of the characteristics of the drug, such as:

a) Have a high metabolic first pass effect;

b) Irritate the gastrointestinal tract;

c) Poor solubility;

d) Rapid release of drug is necessary;

e) Precise plasma concentration is needed;

f) Expensive and has compliance issues.

IntelGenx’s Mucoadhesive Tablet Technology: AdVersa

IntelGenx has developed a proprietary mucoadhesive technology called AdVersa. AdVersa uses a solid

dosage form (a thin flat tablet) that adheres to the mucosal surface in the oral cavity. This system is

different from the oral film in that AdVersa allows for programming the adhesive and adsorptive

properties of the dosage form depending on the permeability of the drug substance. In addition the

residence time of the dosage form is also programmable to regulate the period of sustained release

required for effective therapy. Some of the advantages of the AdVersa technology are:

a) Versatile residence time to enhance/control drug adsorption;

b) Enhance adsorption of poorly soluble drugs;

c) Easy administration, easy removal or termination;

d) High/ increased patient acceptability;

e) Possibility of various sizes and shapes;

f) Easy manufacturing process.



Multilayer Tablet

As drug regimens get complicated in terms of either the number of drugs that need to be co-administered

or the number of times a drug needs to be administered, new modes of drug delivery, such as multilayer

tablet technology have been invented. In a multilayer tablet (Exhibit 5), two or more active

pharmaceutical ingredients (API) or a single API with multiple excipients that have alternate release

profiles are combined into a single pill. In conditions, such as cancer, HIV AIDS, or rheumatoid arthritis,

fixed dose combinations are often used. Additionally, the combination of immediate and modified release

matrix is also found to increase bioavailability. They generally are made up of parallel, colored, visually

distinct layers of two or three APIs along with layers of functional and non-functional placebo layers in

order to avoid interaction between different incompatible drug substances. In certain cases, there is a core

drug layer that is sandwiched between external layers that contains different amounts of drug to form a

gradient matrix or just to act as a barrier in order to restrict immediate release. Multilayer tablets are

designed for various reasons, such as:

a) To administer two incompatible APIs;

b) To regulate the rate of release of one or more different APIs;

c) To maintain a steady plasma concentration and enhance therapeutic potential of an API over a

longer period of time;

d) To improve patient compliance;

e) Cost management;

f) Life cycle management.

Exhibit 5: A schematic representation of a multilayer tablet

Source: openi.nlm.nih.gov/detailedresult.php?img=3269670_ijms-13-00018f4&req=4 accessed June 20, 2014

IntelGenx’s Multilayer Tablet: VersaTab

IntelGenx has developed a proprietary multilayer tablet technology called VersaTab. VersaTab has the

advantage of a higher capacity to load larger amounts of drug that is needed in once-daily formulations.

The technology is also versatile enough to have multiple APIs that can be released at different rates. In

addition, the technology allows for a cost savings of 50% compared to other oral delivery technologies.

Exhibit 6: Drug release profile from VersaTab vs. conventional matrix tablet

Source: Company presentation



MARKETED PRODUCTS

Forfivo XL

IntelGenx developed Forfivo XL, an oral once-daily extended-release tablet containing 450mg dose of

bupropion HCl using the VersaTab multilayered tablet technology. Bupropion HCl is the active

ingredient used in GSK’s Wellbutrin XL, an antidepressant. Wellbutrin XL recorded $1.3 billion in US

sales in 2005, the last full year of branded sales. Patients who required a dose of 450mg per day were

given a dose of 300mg and 150mg each of Wellbutrin XL. The FDA approved Forfivo XL on November

2011 and it was launched in the US in October 2012.

IntelGenx entered into a commercialization agreement with Edgemont Pharmaceuticals to market the

product in the US. In exchange, Edgemont agreed to pay $1.0 million upfront payment, $4.0 million in

launch related milestones, and milestone payments amounting to additional $23.5 million based on

achieving certain sales targets. In addition, the company is also eligible to receive double-digit tiered

royalties on the net sales of the product.

Edgemont launched the product in October 2012. IntelGenx received the upfront payment of a $1.0

million and a launch related milestone payment of a $1.0 million. The company started receiving royalties

on the sales of Forfivo XL since Q1 2013 and received a total of $171,000 in royalties during 2013. The

sales of the product have been below expectations. We believe the management has identified potential

solutions and is working with Edgemont to remedy the situation.

Wockhardt Bio AG filed an Abbreviated New Drug Application (ANDA) that resulted in a Paragraph IV

certification in August 2013. Management plans to pursue legal and regulatory pathway to protect their

rights. Forfivo XL is protected by a patent whose exclusivity ends on June 25, 2027 according to the

Orange Book. We expect management to comment on its strategy to resolve the legal issue by the end of

2014.

We currently estimate Forfivo sales to grow from $2 million in 2013 to nearly $39 million in 2025.

Assuming a tiered royalty rate, we believe IntelGenx will record royalties from current $171 thousand to

nearly $7 million by 2025.

PIPELINE

INT0008: Treatment of Migraine in Collaboration with Red Hill

IntelGenx along with its partner, RedHill BioPharma are using their proprietary VersaFilm technology to

develop an oral thin film formulation of rizatriptan, the active ingredient of Merck’s (MRK, NR) Maxalt

for the treatment of migraine. In the 12 months before the expiry of the patent, Maxalt immediate release

recorded US sales of $345 million whereas Maxalt orally disintegrating tablet recorded US sales of $263

million.

The companies completed successfully two bioequivalence studies with the US and European reference

drugs and filed a 505(b)2 New Drug Application (NDA) in March 2013. The FDA issued a Complete

Response Letter (CRL) in February 2014 to which the partners submitted a response in March 2014. The

CRL cited issues primarily related to third party manufacturing, packaging, and labeling but did not

require new clinical studies. Rizatriptan is currently being manufactured by a third party manufacturer in

India. The FDA recently cited the third party for not adhering to manufacturing standards and issued a

483 warning letter. The manufacturer is in the process of resolving these issues. We believe the major

hurdle in commercializing the product is the management’s ability to secure a second compliant source



for rizatriptan. Management has initiated their search to identify a second supplier, and we expect an

announcement by the end of the year. If successful, INT0008 could potentially come to the market in

early 2016.

The partners are planning to file a European Marketing Application with the European regulatory agency

during Q3 2014. We believe that the company should be able to resolve all related issues by the time the

drug is approved in Europe. According to EvaluatePharma, the worldwide market for anti-migraine drugs

is approximately $2 billion and triptan sales were approximately $1 billion in 2013. We currently estimate

peak sales of nearly $60 million for INT0008. We believe RedHill will potentially engage a third partner

to commercialize INT0008. Hence we expect the royalty earned on the sales of INT0008 to be split

between RedHill and IntelGenx. We currently project INT0008 sales to grow from approximately $14

million in 2016 to nearly $60 million in 2025. Accordingly, we model royalty revenue to grow from

nearly $1 million in 2016 to approximately $6 million in 2025.

INT0027: Treatment of Opioid Dependence in Collaboration with Par Pharmaceuticals

In collaboration with its partner, Par Pharmaceuticals, IntelGenx is using their VersaFilm technology to

develop an oral thin film product to administer sublingually buprenorphine and naloxone for the treatment

of opioid dependence. A sublingual formulation of the combination called Suboxone is currently

commercialized by Reckitt Benckiser that recorded annual sales of $1.4 billion in 2013. IntelGenx and

Par have initiated a rolling Abbreviated New Drug Application (ANDA) on July 22, 2013 with the FDA

using the Suboxone sublingual film as a reference. Initially, the application had two doses and the final

dose was filed in December 2013 thus completing their application and FDA is expected to announce the

acceptance of the complete ANDA imminently. The FDA acceptance could potentially trigger a milestone

payment of an undisclosed amount to IntelGenx by Par during Q4 2014.

On initiating the ANDA filing, Reckitt Benckiser filed a lawsuit against the partners for infringement of

their two patents (U.S. Patent Nos. 8,475,832 and 8,017,150) related to sublingual Suboxone in August

2013. As a result FDA cannot approve this product before either the end of a 30-month stay from the date

of lawsuit, i.e. February, 2016 or a final decision is made by the court. Par is responsible for the litigation

expenses according to the collaboration agreement. We conservatively assume that INT0027 could be

launched in Q2 2016 with potential peak sales of nearly $130 million. As the financial details of the

collaboration are not disclosed, we are assuming that IntelGenx will receive a mid-to-high teens tiered

royalty on net sales. Accordingly we project royalty revenues of approximately $4 million in 2016

growing to nearly $26 million by 2025.

INT0007: Treatment of Erectile Dysfunction

An oral film product based on IntelGenx’s VersaFilm technology is currently in the optimization stage.

The product contains the active ingredient, tadalafil for the treatment of erectile dysfunction (ED).

Tadalafil is the active ingredient of Eli Lilly’s (LLY, NR) Cialis. Eli Lilly reported worldwide Cialis sales

of $2.2 billion with US sales of $943 million during 2013. In the US, Cialis has patent exclusivity until

November 21, 2017. The results of a Phase I pilot study conducted during Q3 2010 indicated that the

product is bioequivalent with Cialis. However, a second clinical trial comparing an alternative

formulation completed in Q1 2013 indicated that the product would result in a faster acting tadalafil

compared to Cialis. Hence, the company is currently testing an alternative bioequivalent formulation in

the clinic. Without much insight into either the timing of a regulatory filing or expected royalties from a

potential partner, we are not assuming any revenues from this product in our financial model.



INT0001: Treatment of Hypertension in Collaboration with Dava Pharmaceuticals

INT0001 is the most clinically advanced product using the VersaTab multilayer tablet technology.

IntelGenx is developing INT0001, a multilayer tablet containing metoprolol, the active ingredient of

Toprol. Toprol lost its patent exclusivity in the US during 2007. The branded drug generated $1.7 billion

in annual US sales during 2006. IntelGenx with partner, Dava Pharmaceuticals have completed Phase I

studies and are currently planning pivotal studies. Recently, Endo Pharmaceuticals (ENDP, NR)

announced its acquisition of Dava. According to IntelGenx’s management Endo highlighted this product

as part of its acquisition of Dava which we consider a positive for further development of INT0001. At

this time, we are not assuming any sales from this product in our financial model.

INT0024: Treatment of Idiopathic Pulmonary Fibrosis in Collaboration with Pacific

Therapeutics

IntelGenx along with partner, Pacific Technologies are developing INT0024 using the VersaTab

multilayer tablet technology. The product is a multilayer tablet that is a combination of pentoxyfylline and

N-acetyl cysteine for the treatment of idiopathic pulmonary fibrosis. In an initial clinical study to

understand the pharmacokinetic parameters, INT0024 administration lead to a multi-fold higher

absorption than what was deemed to be pharmacologically needed. The partners are currently planning to

conduct a Phase II (a) study to identify an appropriate dose for pivotal studies. We expect the Phase II (a)

study to complete by the end of 2015. Pacific plans to identify a commercializing partner to do the pivotal

study and commercialize the product. We believe, if the current plans are successful, INT0024 could be in

the market during 2017-2018 timeframe. We are not assuming any sales from this product in our financial

model.



FINANCIALS

Revenues

IntelGenx generates revenues through royalties, license fees and milestone payments. Along with

licensing partner, Edgemont, Forfivo XL was launched in October 2012. Royalties are received from

Edgemont in the quarter following the quarter when sales occurred. Hence, IntelGenx started received

royalties from Q1 2013 and for the full year 2013, the company received $171,000. According to the

licensing agreement, IntelGenx is expected to receive a tiered double-digit royalty rate.

During the forecast period, 2014E-2025E, we have currently modeled for royalty income from three

sources: Forfvo XL, INT0008, and INT0027. We believe the company could potentially achieve royalty

incomes during this period from other products that have been licensed out, such as INT0037 and another

undisclosed compound (Par), INT0001 (Dava), and INT0024 (Pacific). However, with no clarity at this

time regarding launch timelines or potential royalty rates, we have not included them in our financial

models.

Exhibit 7: IntelGenx revenue, 2013A-2025E

Source: H.C. Wainwright estimates

Forfivo royalties potentially could grow to nearly $7 million

Exhibit 8: Forfivo royalty income, 2013A-2025E


While Forfivo XL related royalties of $171,000 in 2013 validated the VersaTab technology and

IntelGenxt’s ability to monetize their development efforts, it did not meet management’s expectations. As

Forfivo XL is the only available single pill formulation containing bupropion 450mg, the sales were

expected to be higher. Management has been working with Edgemont to identify potential factors that

$0

$1

$2

$3

$4

$5

$6

$7

$8

Fofi

vo X

L r

oyal

ty i

nco

me

(mil

lion)



could help reinvigorate growth. One such strategy was to employ a salesforce rather than conduct e-

marketing. The change was made during early 2014, and we believe the royalty income in Q2 2014 will

reflect those changes. Based on the 2013 Forfivo related royalty revenues we estimate that the drug’s

current penetration into Wellbutrin XL market is less than 1%. However, we believe with anticipated

changes to the marketing program, Forfivo XL could potentially achieve 14% of the market by 2025.

Additionally, we also management will be successful in defending their intellectual property rights

against Wockhardt. Accordingly, we expect royalty income from Forfivo XL to increase from current

$171,000 in 2013 to approximately $7 million in 2025.

Royalty income from INT0008 and INT0027 could potentially grow to $17 million

We expect INT0008 and INT0027 to be launched by RedHill and Par, respectively in 2016. With

management expected to be successful in identifying a second compliant source for rizatriptan during the

H2 2014, we believe INT0008 could potentially be launched in 2016. We believe RedHill will potentially

engage a third partner to commercialize INT0008. Hence we expect the royalty earned on the sales of

INT0008 to be split between RedHill and IntelGenx. We currently project INT0008 sales to grow from

approximately $14 million in 2016 to nearly $60 million in 2025. Accordingly, we model royalty revenue

to grow from nearly $1 million in 2016 to approximately $6 million in 2025.

Regarding INT0027, we are currently conservatively assuming that Par would need to abide by the 30-

month stay triggered as a result of the lawsuit filed by Reckitt Benckiser in August 2013 and be able to

launch during mid-2016. IntelGenx is expected to receive a certain percentage of net profits from the

sales of the product, though no specific information has been disclosed. Accordingly, we are assuming

that IntelGenx will receive 20% of sales for modeling purposes. Hence, we estimate royalties for

INT0027 to grow from approximately $4 million in 2016 to nearly $26 million in 2025.

Exhibit 9: Royalty revenue from INT0008 and INT0027, 2016E-2025E


$0

$5

$10

$15

$20

$25

$30

$35

Royal

ty i

nco

me

(mil

lion)

INT0008 INT0027



Operating Income

Historically, IntelGenx has been generating operating losses. We believe the launch of INT0008 and

INT0027 in 2016 should lead to an operating income from 2016 onwards. The business strategy of the

company is to develop products and license the commercial rights allowing for low operational expenses.

The company plans to commission a manufacturing facility by 2016 and hence will incur costs associated

with that plant. However, since film technology is not an expensive operation and varies depending on the

active pharmaceutical ingredient being used in the film, we are assuming a low cost of goods margin at

3% of sales. Additionally, management has been able to command development milestones that help to

defray some of the costs of developing a pipeline. Accordingly, we have assumed modest increases in

R&D and SG&A expenses during the forecast period. Considering the expected ramp in sales, we expect

operating margins to expand in the long term and potentially grow to nearly 85% by 2025.

Net Income and EPS

IntelGenx announced a net loss of $673,000 and an EPS of ($0.01) at the end of Q1 2014 compared to a

net loss of $522,000 and EPS of ($0.01) in Q2 2014. However, we estimate a net loss of approximately

$3.8 million and an EPS of ($0.06) for full year 2014 compared to a net loss of $1.7 million and an EPS

of ($0.03). We believe with the potential launch of INT0008 and INT0027, 2016 should be the first year

of a positive net income of approximately $1.5 million resulting in an EPS of $0.02. Refer to the detailed

income statement for our net income and EPS estimates for the forecast period, 2017E-2025E.

Cash

IntelGenx ended its Q1 2014 on March 31, 2014 with $5.2 million in cash and cash equivalents, and

short-term investments. We expect the company to close 2014 with approximately $3.5 million in cash

and cash equivalents. We model operating cash use of nearly $3.3 million in 2014. Additionally, the

company could potentially receive an undisclosed milestone payment from Par Pharmaceuticals if a

second compound is filed for regulatory approval before the end of 2014. Hence we believe that in the

event INT0008 and INT0027 are not marketed in 2016, though unlikely, management has cash reserves

potentially for next one year, provided the cash burn stays at current levels.



VALUATION

We value the shares of IntelGenx using a discounted price-earnings multiple and a discounted cash flow

analysis. Assuming a 25x price-earnings multiple to our 2025 earnings estimate based on our anticipation

of significant growth coming from Forfivo, INT0008 and INT0027 and assuming a 15% discount rate

considering the execution risk, we value the shares at $2.24 per diluted share. Applying a 2% terminal

growth rate to the company’s free cash flow in 2025 and discounting over 10.5 periods at a discount rate

of 12% considering the validated technologies and execution risk we obtain a fair value of $2.01 per

diluted share. Averaging the results of these two methods, we obtain a 12-month price target of $2.13

which we round it to $2.00 per share.

Exhibit 10: Price-Earnings multiple analysis


Exhibit 11: DCF analysis


## 19 21 23 25 27 29 31

8% 3.18 3.51 3.85 4.18 4.52 4.85 5.19

10% 2.69 2.97 3.25 3.54 3.82 4.10 4.38

12% 2.19 2.42 2.65 2.88 3.11 3.34 3.57

15% 1.70 1.88 2.06 2.24 2.42 2.60 2.78

18% 1.33 1.47 1.61 1.75 1.89 2.03 2.17

22% 1.00 1.11 1.21 1.32 1.42 1.53 1.63

26% 0.72 0.79 0.87 0.95 1.02 1.10 1.17

Dis

cou

nt

fact

or

Price-Earnings multiple

## 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6%

5% 7.22 7.56 7.94 8.37 8.86 9.43 10.09

7% 4.33 4.45 4.57 4.70 4.84 4.99 5.16

9% 2.99 3.04 3.09 3.15 3.21 3.27 3.33

12% 1.96 1.97 1.99 2.01 2.04 2.06 2.08

15% 1.40 1.41 1.42 1.43 1.44 1.45 1.46

17% 1.16 1.16 1.17 1.17 1.18 1.19 1.19

19% 0.98 0.98 0.98 0.99 0.99 0.99 1.00

Terminal gowth rate

Dis

cou

nt

fact

or



EXECUTIVE SUMMARY

Rajiv Khosla RPh, Ph. D., MBA, President & Chief Executive Officer

Dr. Khosla was IntelGenx’ first Chief Operating Officer and Chief Scientific Officer prior to becoming

President and CEO on January 1, 2014. Previously, he was President, Chief Executive Officer and a

member of the board of directors of Orasi Medical, a leading provider of clinical neurophysiology

biomarkers, focused on the industrialization and standardization of magnetoencephalography (MEG) in

central nervous system drug and therapeutic device development. In January 2011, Dr. Khosla founded

CEUTEC LLC, a private company that offers a full-service of business development activities to Biotech,

Specialty Pharma and Venture Capital/Private Equity Firms. From September 2005 to December 2010,

Dr. Khosla was Vice President of Business Development at Biovail Corporation. From 2003 to 2005, Dr.

Khosla held the position of Vice President and General Manager, Pharmaceutical, of Sensient

Technologies. From 1998 to 2003, Dr. Khosla served as Senior Business Director, Healthcare at ICI

Group, where he managed a new worldwide healthcare business. Dr. Khosla possesses a Ph.D. in

pharmaceutical science, with a thesis on Oral Drug Delivery Technology, which he completed in 1987.

Additionally, Dr. Khosla holds an Executive MBA from the Henley Business School in England, a

Bachelor of Pharmacy (Honours) from the University of Nottingham, England and is also a registered

pharmacist in the UK.

Paul Simmons, Chief Financial Officer

Mr. Simmons has held CFO and VP-Finance & Administration positions with several international

manufacturing organizations in both the private and public sectors. He has a wealth of business and

financial experience and a proven track record of driving small companies into successful medium-sized

corporations. His expertise includes aligning financial planning with company objectives, turnaround

management, and M&A activities and his financial leadership has enabled organizations to consistently

exceed corporate targets in delivering fiscal gains and enhance shareholder value.

Nadine Paiement, M.Sc., Director, Pharmaceutical R&D

Ms. Paiement holds a M.Sc. degree in Polymer Chemistry from Sherbrooke University and is co-inventor

of IntelGenx’ three platform technologies. Her strong background in the pharmaceutical industry

encompasses all areas from the laboratory level through to manufacturing scale-up, and during her more

than 10 years’ experience she has developed a highly creative approach to the development of new

methods and resolving technical issues. She owns two patents, has multiple pending applications, and has

published articles in various recognized journals.

Alexandre Serrano, Ph.D., Associate Director, Business Development

Mr. Serrano holds a PhD in neurosciences from Montreal University. He has held various scientific

positions at Bellus Health Inc. (formerly Neurochem Inc.) and at AstraZeneca (AZN, NR) where he was

also actively involved in licensing. He brings a strong understanding of the pharmaceutical industry and a

broad scientific background. He has published various scientific papers in recognized journals.



IntelGenx historical Income Statement and Financial Projections

Source: Company reports and H.C. Wainwright estimates

$ ('000) Except Per Share Data 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Revenues

Royalties 188 451 853 6,748 11,316 15,763 20,273 24,849 28,912 33,033 37,213 38,074 38,748

License and other 760 356 308 377 400 400 400 400 400 400 400 400 400

Total Revenues ('000) 948 807 1,161 7,125 11,716 16,163 20,673 25,249 29,312 33,433 37,613 38,474 39,148

Expenses

COGS - - - 214 351 485 620 757 879 1,003 1,128 1,154 1,174

R&D 561 1,467 1,623 1,786 1,839 1,895 1,932 1,971 1,971 1,951 1,932 1,893 1,855

SG&A 1,954 2,879 3,477 3,512 3,477 3,442 3,408 3,374 3,306 3,240 3,175 3,112 3,050

Depreciation 34 28 28 28 28 28 28 28 28 28 28 28 28

Amortization 38 36 36 36 36 36 36 36 36 36 36 36 36

Total Costs & Expenses 2,587 4,409 5,165 5,576 5,732 5,886 6,025 6,166 6,221 6,259 6,300 6,223 6,143

Operating (Loss)/ Income (1,639) (3,602) (4,004) 1,549 5,984 10,277 14,649 19,083 23,091 27,175 31,313 32,251 33,005

Interest and other income - - - - - - - - - - - - -

Foregn Currency Translation (124) (231) - - - - - - - - - - -

Pre-Income Tax (Loss)/ Income (1,763) (3,833) (4,004) 1,549 5,984 10,277 14,649 19,083 23,091 27,175 31,313 32,251 33,005

Income Tax - - - - - 3,070 5,127 6,679 8,082 9,511 10,960 11,288 11,552

Tax Rate 0% 0% 0% 0% 0% 30% 35% 35% 35% 35% 35% 35% 35%

Net (Loss)/ Income (1,763) (3,833) (4,004) 1,549 5,984 7,207 9,522 12,404 15,009 17,664 20,354 20,963 21,453

Basic EPS (0.03) (0.06) (0.06) 0.02 0.10 0.12 0.15 0.20 0.24 0.28 0.32 0.33 0.34

Diluted EPS (0.03) (0.06) (0.06) 0.02 0.10 0.12 0.15 0.20 0.24 0.28 0.32 0.33 0.34

Basic Shares Outstanding 54,024 62,111 62,235 62,360 62,484 62,609 62,735 62,860 62,986 63,112 63,239 63,365 63,492

Diluted Shares Outstanding 54,024 62,111 62,235 62,360 62,484 62,609 62,735 62,860 62,986 63,112 63,239 63,365 63,492



IntelGenx Historical Balance Sheet


$ ('000) 2011A 2012A 2013A

Assets

Cash and cash equivalents 3,505 2,059 5,005

Accounts receivable 263 1,282 144

Prepaid expenses 68 102 133

Investment tax credits receivable 460 213 268

Total Current Assets 4,296 3,656 5,550

Leasehold Improvements & Equipment 149 387 588

Intangible Assets 125 116 79

Total Assets 4,570 4,159 6,217

Liabilities

Accounts payable & acrued liabilities 666 1,058 593

Deferred license revenue - 308 308

Total Current Liabilities 666 1,366 901

Deferred license revenue, non-current - 615 308

Total Liabilities 666 1,981 1,209

Shareholders equity

Capital stock 1

Additional Paid-in Capital 15,918 16,342 20,934

Accumulated deficit (12,213) (14,463) (16,102)

Accumulated Other Comprehensice Income 199 299 175

Total Shareholder's Equity 3,904 2,178 5,008

Total Liabilities & Shareholders Equity 4,570 4,159 6,217



IntelGenx Historical Cash Flow Statement


$ ('000) 2011A 2012A 2013A

Operating Activaties

Net Loss (Non- GAAP) (2,403) (2,150) (1,763)

Adjustments (49) (100) 124

Net Loss (GAAP) (2,452) (2,250) (1,639)

Depreciation 37 23 38

Amortization - 23 34

Stock based compensation 38 59 114

Changes in assets & liabilities

Accounts receivable 53 (1,019) 1,138

Prepaid expenses - (34) (31)

Investment tax credits & other receivable 8 247 (55)

Accounts payable & acrued liabilities - 390 (465)

Deffered revenue - 923 (307)

Net change in assets & liabilities 61 507 280

Net cash (used)/ provided by operations (2,316) (1,638) (1,173)

Financing Activities

Issuance of common stock & warrants 5,149 - 3,500

Proceeds from exercise of warrants - 365 1,496

Transaction costs (369) - (517)

Net cash provided by financing activities 4,780 365 4,479

Investing Activities

Additions to property & equipment (34) (270) (266)

Additions to intangible assets (125) - -

Net cash used in Investments (159) (270) (266)

Increase in Cash & Cash equivalents 2,305 (1,543) 3,040

Effect of Foreign Exchange 56 97 (94)

Cash & Cash equivalents, Beginning of Period 1,144 3,505 2,059

Cash & Cash equivalents, End of Period 3,505 2,059 5,005



Important Disclaimers

H.C. WAINWRIGHT & CO, LLC RATING SYSTEM: H.C. Wainwright employs a three tier rating system for evaluating boththe potential return and risk associated with owning common equity shares of rated firms. The expected return of any givenequity is measured on a RELATIVE basis of other companies in the same sector. The price objective is calculated to estimatethe potential movements in price that a given equity could reach provided certain targets are met over a defined time horizon.Price objectives are subject to external factors including industry events and market volatility.

RETURN ASSESSMENT

Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all thecommon stock of companies within the same sector.Market Perform (Neutral): The common stock of the company is expected to mimic the performance of a passive indexcomprised of all the common stock of companies within the same sector.Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised ofall the common stock of companies within the same sector.

Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placementof securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a companyor one of its affiliates or subsidiaries within the past 12 months.

Distribution of Ratings TableIB Service/Past 12 Months

Ratings Count Percent Count PercentBuy 54 90.00% 23 42.59%Neutral 4 6.67% 0 0.00%Sell 0 0.00% 0 0.00%Under Review 2 3.33% 0 0.00%Total 60 100% 23 38.33%

H.C. Wainwright & Co, LLC (the “Firm”) is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.

I, Swayampakula Ramakanth, Ph.D. , certify that 1) all of the views expressed in this report accurately reflect my personalviews about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directlyor indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor anymembers of my household is an officer, director or advisory board member of these companies.

None of the research analysts or the research analyst’s household has a financial interest in the securities of IntelGenxTechnologies Corp. (including, without limitation, any option, right, warrant, future, long or short position).As of May 31, 2014 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securitiesof IntelGenx Technologies Corp. .Neither the research analyst nor the Firm has any material conflict of interest in IntelGenx Technologies Corp. of which theresearch analyst knows or has reason to know at the time of publication of this research report.



The research analyst principally responsible for preparation of the report does not receive compensation that is based upon anyspecific investment banking services or transaction but is compensated based on factors including total revenue and profitabilityof the Firm, a substantial portion of which is derived from investment banking services.

The Firm or its affiliates did receive compensation from IntelGenx Technologies Corp. for investment banking services withintwelve months before, and may seek compensation from the companies mentioned in this report for investment bankingservices within three months following publication of the research report.

The Firm does not make a market in IntelGenx Technologies Corp. as of the date of this research report.

The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as beingaccurate and does not purport to be a complete statement or summary of the available data on the company, industry or securitydiscussed in the report. All opinions and estimates included in this report constitute the analyst’s judgment as of the date ofthis report and are subject to change without notice.

The securities of the company discussed in this report may be unsuitable for investors depending on their specific investmentobjectives and financial position. Past performance is no guarantee of future results. This report is offered for informationalpurposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdictionwhere such would be prohibited. No part of this report may be reproduced in any form without the expressed permission ofH.C. Wainwright & Co, LLC. Additional information available upon request.



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