IntelGenx Technologies Corp.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good day everyone, and welcome to today's IntelGenx Technologies Corp. First Quarter 2021 Call and Webcast. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the question-and-answer session. It is now my pleasure to turn today's program over to Stephen Kilmer, Investor Relations.

[Stephen Kilmer:]

Thank you. Good afternoon, everyone and thank you for joining us on today's call. With me on the line are Dr. Horst Zerbe, IntelGenx's CEO; and André Godin, our President and CFO. Before we begin, I would like to remind you that all amounts mentioned today are in U.S. dollars unless otherwise mentioned and today's call may contain forward-looking information that represents our expectations as of today and accordingly are subject to change.

[Horst Zerbe:]

Thank you, Steve. Good afternoon everyone and thank you for joining us for the IntelGenx first quarter 2021 conference call. On today's call, I will provide a corporate update, and discuss the progress we've made on our key pipeline projects. Following that André will review our Q1, 2021 financial results. Then we will open up the line for your questions. Let's start with the Atai partnership. Two days ago, our shareholders approved all proposals at our annual meeting, including the investment resolution related to our partnership with Atai Life Sciences, tech driven biopharmaceutical company with an attractive portfolio of psychedelic and non-psychedelic compounds intended for the treatment of mental health disorders. This transaction is potentially transformational to IntelGenx. It moves the company into a leadership position within the novel therapeutic field of psychedelics, while at the same time providing the needed financial resources to advance our product pipeline. It also means we've gained very significant new major shareholder. In this partnership, we will integrate our film technology with Atai's existing pipeline and work exclusively with them in the field of compounds for the prevention or treatment of mental health disorders or compounds that have psychedelic entactogenic and oneirophrenic properties just for explanation entactogenic drugs are drugs that cause empathy and on oneirophrenic drugs cause a hallucinatory sort of dreamlike state. Through our first collaboration with our Atai, we found that IntelGenx Technologies can address some of the unique complexities of developing psychedelic compounds for the treatment of mental health disorders. For example, the metabolic pathway of some psychedelics requires the compartment and administration of MIO amino oxidase that is inhibitors to achieve the required duration of action of the psychedelic drug. The avoidance of first hospitalization following the term administration removes the necessity of concomitant dosing of an MAO inhibitor. The term delivery can thus play an integral role in clearing a clinical pathway for Atai's existing pipeline, as well as create promising development opportunities for us. The fruits of this are already materializing.

[André Godin:]

Thank you Horst. Good afternoon, everyone. As Horst mentioned, I'll take a few minutes to discuss the company's financial performance for the first quarter of 2021. We're pleased to see the positive impact of our performance improvement program continued to be reflected in the numbers. Overall revenue for the 2021 first quarter amounted to $286,000 compared to $202,000 in the same period last year. The 42% increase in revenue is attributable to an increase in product revenue of $160,000 partially offset by a $76,000 decrease in R&D revenues. Operating costs and expenses were $2.2 million for Q1, 2021 versus $2.4 million for the corresponding three month period of 2020. The decrease is mainly attributable to a $379,000 decrease in R&D expenses, partially offset by $143,000 increase in manufacturing expenses and $83,000 increase in SG&A. For Q1, 2021, the company at an operating loss of $1.9 million, compared to an operating loss of $2.2 million for the comparable period of 2020. The adjusted EBITDA was negative $1.7 million for Q1, 2021 compared to negative $1.9 million for the same period last year. Net comprehensive loss was $2.3 million or $0.02 on a basic and diluted per share basis for Q1, 2021 compared to a net comprehensive loss of $2.9 million, or $0.03 per share for the comparable period of 2020. As of March 31, 2021, the company's cash and short term investments totaled $2 million. And we also fully reimburse the Bank of Montreal credit facility in Q1, 2021. While $2 million is obviously a lower amount of cash that I would like to remind everyone that this does not include any of the proceeds from Atai second loan of $500,000 that was advanced a few days ago nor its initial purchase of 37.3 million shares of our common stock and 22.3 million warrants for a total gross proceeds of approximately $12.3 million. Now that our shareholders have approved our transaction with Atai while still subject to the approval of the TSX Venture Exchange, we currently expect to close on or about May 14. As Horst mentioned, this will provide the requisite financial resource to continue to advance our portfolio of innovative film products and products candidate. Also, now that we have received shareholders’ approval, the company has submitted a listing application to the Toronto Stock Exchange and the listing of the shares on the Toronto Stock Exchange is subject to IntelGenx meeting all of the listing requirements and obtaining the approval of the Toronto Stock Exchange. There is no assurance that the Toronto Stock Exchange will approve the listing application.

[Horst Zerbe:]

Yes. Thanks André. In closing, I'd like to once again recognize our team for executing on our long term strategy. On behalf of my fellow board members, I would also like to thank again, our shareholders for approving all proposals at our annual general meeting. With that, I will now turn the call over for questions. I'd like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Thank you.

[Operator:]

We will take our first question from , please go ahead. Your line is open.

[Unidentified Analyst:]

Good afternoon to the IntelGenx team. Congratulations on the Atai and also for the progress. My question is in relation to Tadalafil and also RIZAPORT. When are we likely to see some revenue flowing through now we've obviously ran past from being a formulation company to a potential manufacturing. When do we see actually generating revenue. Would you be able to give some timelines please? Thank you.

[Horst Zerbe:]

Okay, let me start out with RIZAPORT because that's easier. The launch in Spain is scheduled for early Q3 in July, if I'm not entirely mistaken. So that will generate first revenues from product sales for us. As far as RIZAPORT U.S. the best guess that I can provide right now is we have just started manufacturing the full scale production batches that we need in order to respond to the CRL that we received from the FDA. We expect to submit the response to the CRL early next year and so with six months response we expect that sometime in the second half of next year probably towards the end of next year, we expect revenues from sales in the U.S. Tadalafil, we need to, we in this case meaning IntelGenx and our development partner Aquestive, we need to respond or conduct the safety study that FDA requested in the CRL. And we made the commitment to not commence the study before we have signed up a partner. We are in very advanced discussions with a partner. Obviously I cannot disclose any names, we expect the study to commence in the second half of this year and then the response will be filed most likely early next year. So in the second half of next year 2023 for sure, we are expecting revenues from Tadalafil.

[Unidentified Analyst:]

One last question if I may.

[Horst Zerbe:]

Yes.

[Unidentified Analyst:]

With Atai being or should I say gaining majority shareholder, do you anticipate a board nomination from Atai or is it too soon?

[Horst Zerbe:]

Yes. The deal provides that they will have delegates on our board proportional to their holdings. So they plan in the first tranche to hold 25% or accordingly, the agreement provides that they will get a quarter and that concretely means two directors added to our board.

[Unidentified Analyst:]

Thank you and good luck.

[Horst Zerbe:]

Thank you.

[Operator:]

And we will take our next question from . Go ahead, your line is open.

[Unidentified Analyst:]

Hi, congratulations on the results and all the progress. I had a few questions. The first I was expecting to see the second tranche of the Tetra 40% payment in the first quarter. Did something happen with that?

[Horst Zerbe:]

Andre, can you respond, please?

[André Godin:]

Yes. I mean, there's a difference between revenue recognition and when we received the payment and that's according to U.S. GAAP, but we already received the second payment. So, it has been fully paid there remains 10% or 100,000 to be collected from Tetra upon approval of the product.

[Unidentified Analyst:]

And when do you plan on recognizing the next 40%?

[André Godin:]

It has been recognized.

[Unidentified Analyst:]

You mentioned in the AGM that there are two new cannabis films under development. Are you able to say who those are for or if those are for heritage?

[Horst Zerbe:]

No, we can only talk generically about that. We cannot provide any details.

[Unidentified Analyst:]

Okay, thank you. And then in the AGM, they also mentioned that a second order for heritage was potentially expected to be received and shipped in the second quarter. Could you provide any color on that?

[Horst Zerbe:]

I can only confirm that and qualitatively speaking, I expect that order to be significantly larger than the first order. But again, I don't want to provide any numbers. We are in regular conversations with heritage. So from those conversations in which I regularly participate, we expect the order to be coming in very soon. But again, I can only comment qualitatively to the question. We're confident it's going to come in the very near future.

[Unidentified Analyst:]

Thank you very much. If Atai does end up exercising all of their warrants and buying all the shares and they get their full 60% ownership, will there be any conditions around buying up the remaining 40% of shares like a super majority being required or have you discussed that?

[Horst Zerbe:]

That has never been discussed with them. Andre you may add if you want, but I can confidently say this has never been subject of any discussions between ourselves and Atai management.

[André Godin:]

Yes, I can confirm that. I mean, so far they're going to own 25% after first closing. They have options to go up to 60, but never was it discussed what would happen after that? Whether they would want to own the entire company, whether they would make an offer to shareholders? We haven't discussed that.

[Unidentified Analyst:]

Okay and one final question. If we are approved for the TSX uplisting, is there anything in that process of actually uplisting that would lead to an accounting of shares that would eliminate potentially any naked short positions that there could potentially be?

[Horst Zerbe:]

Yes André I think that's for you right?

[André Godin:]

I mean obviously, the TSX is highly regulated. So it could potentially reduce the short. You can never eliminate short in Canada, but I think that the main issue right now is that most of the shortage is coming from the U.S. So, in Canada, honestly, it's not so bad. So I think that it's always been an objective of IntelGenx to migrate to a senior exchange in the U.S. to take care of that problem or at least control it. So that's something that will definitely keep in mind in the future hopefully with the stock price appreciating, it could potentially allow us to migrate to a senior exchange in the U.S. So being in the senior exchange in both Canada and U.S. would definitely reduce the short drastically.

[Unidentified Analyst:]

Excellent. Thank you so much, and congratulations again.

[Horst Zerbe:]

Thank you.

[Operator:]

And we will take our next question from . Your line is open.

[Unidentified Analyst:]

Hi, everyone, it's a pleasure to be speaking with you and again, congratulations on the Atai agreement and I can probably speak for most investors, it's a lot of big confidence booster for all of us. My first question is something that actually hasn't been talked about, but came across a few of my colleagues’ attention. Last June, Dr. Obeid at the company there had written an article in contract pharma magazine, in regard to putting vaccines onto oral films. I know the company hasn't talked about this at all. But I was just curious if that would be an area that might be explored either in the past or in the future. I know you have a ton of things on the burners now. But if you could speak to that at all it's something again, we'd be interested in hearing about?

[Horst Zerbe:]

Yes. I mean, it's of course, a very attractive segment. And we in fact, have looked in the past, we not only have looked into this possibility, we concretely spoke and attempted to enter into a partnership with one leading vaccine developer here in Montreal and we have to prioritize because we have limited resources. And so that program was put a little bit on the back burner. But Rudolph had every right to mention that this program has not been forgotten particularly with the COVID situation right now. We are again looking into this. But again, there is no concrete program in progress right now.

[Unidentified Analyst:]

Okay. Thank you so much. And it relates also to the second part of my question with how I may be involved with some other projects that have been ongoing may be placed on hold in the company due to either not enough funds floating around or just so many things competing for attention. For example, the Montelukast could Atai perhaps say, this is even though it's not our focus. This might be something we're very interested in speeding the process to market and we have some resources that may lend to move in that program forward once it's approved to be re-examined by Health Canada. How does that relationship work exactly in any projects that are ongoing?

[Horst Zerbe:]

Yes. To respond specifically to your Montelukast comments, Montelukast has not been put on hold because of lack of funding. The one and only reason as to why we had to put this on hold was the COVID situation. We simply had to stop recruitment because of the high COVID-19 was off the target patient population. Now, with respect to Atai, Atai has expressed and we put it this way, a potential interest in the asset so they have reserved the right, at some point down the line if it turns out that it could be attractive for them to step in and take over the program. Taking over in this case meaning that we of course would continue developing the program but with and for Atai as our commercialization partner.

[Unidentified Analyst:]

Thank you so much. One final question in regard to Cybin, I believe IntelGenx is currently creating, helping them create some submission batches for their ongoing phase two studies. Is the company receiving revenue for that currently or in the future? What's the relationship in terms of economics?

[Horst Zerbe:]

The agreement with Cybin is a feasibility study agreement. So we are developing a prototype formulation that Cybin intends to further test in clinical studies. I cannot confirm that these clinical studies would be phase two studies that is confidential, but I doubt it would because very typically in the development process before you even get approval from regulatory authorities for a phase two, you would first have to conduct a phase one. But that is Cybin’s decision. So again, we have a feasibility agreement with them in place under which we do formulation development, prototype development for further clinical development by Cybin at their discretion and under their regime.

[Unidentified Analyst:]

Okay, great. Again, thank you. Congratulations to all and good talking to you. Good luck for everything ongoing with you. Very exciting.

[Horst Zerbe:]

Thank you.

[Operator:]

And we will take our next question from . Your line is open.

[Unidentified Analyst:]

Thank you so much for allowing me to ask the question here Dr. Horst and Andre, and congratulations on the progress. With the Atai partnership and the potential for Atai to purchase up to 60% of the company and you and Andre have confirmed that there have been no talks on their end to acquire the rest of the outstanding shares. Would you ever entertain that idea if ever gets to a point because a lot of programs in place and I think it looks very attractive to a company like Atai?

[Horst Zerbe:]

Honestly, we're not looking that far out into the future. We'll discuss if and when we will be confronted with that. This has never been subject of discussion within management or at the board level. I can honestly say that's all, it has not been a concern and Atai as Andre mentioned before, Atai has never addressed this subject either in our regular conversations.

[Unidentified Analyst:]

Thank you for that. And also a second question in regards to Montelukast. So Atai, they have expressed interest and I just want to confirm what you said, if they were to follow through they would be the exclusive commercialization partner. Correct?

[Horst Zerbe:]

I mean, a deal hasn't been caught yet. But that is what we normally do. I think with one exception only and that is cannabis only enter into exclusive commercialization deal. So I would anticipate even though like I said no deal has been made yet and not even discussed that this would be an exclusive deal.

[Unidentified Analyst:]

Thank you very much for your time.

[Horst Zerbe:]

You're welcome.

[Operator:]

And we will take our next question from . Your line is open.

[Unidentified Analyst:]

Thank you very much for taking my questions. And as a longtime shareholder, congratulations to you and your team. Things are certainly looking much more positively. My first question is regarding the market penetration of RIZAPORT into other European countries. I understand that each country requires its own form of approval. Can you give us a roadmap to that and do you know, if our partner has started applying to other European countries? And my second question regards the companion animal program. Can you give us, I'm not familiar with the regulatory path, a non-human drugs? Can you give us some overview on that and when you might expect this program to actually reach fruition?

[Horst Zerbe:]

Certainly. So with respect to your first question regarding RIZAPORT and potential launching in other jurisdictions in Europe. So it's not quite correct what you said that or what you're assuming that the application requires full approval in each jurisdiction. There is a European application, we filed a European application. And so after European approval has been achieved then the product simply has to enter a national phase which mostly deals with pricing. So the regulatory pathway into other European jurisdictions has been greatly simplified. Now as far as concrete plans to actively enter into other European countries, I'm not aware of any concrete steps, but I can qualitatively say is that Exeltis approached us for that. Again, this is a qualitative statement. They stated that this is a high potential products for them in Europe and they would like to be the first with a migraine film in as many European countries as possible at this point in time, they are focusing on the Spanish launch. I'm not aware of any concrete plans for them to submit regionally in any other European country at this point in time. I suspect that will be the case once they have a first impression regarding the performance of the product on the Spanish market.

[Unidentified Analyst:]

Thank you very much for clarifying that. That's very helpful. So then with the production facility be subject to inspection or would the Spanish inspection do for other countries?

[Horst Zerbe:]

No, there is no inspection anymore. That's all behind us. We are, as I'm sure you're aware, with qualified European manufacturer and all these regulatory steps are behind us. They are currently as we speak literally in the process of making the necessary qualification batches which are already saleable product. So they are really in advanced stage of bringing the product to the market.

[Unidentified Analyst:]

That is very good news. Thank you very much for that information.

[Horst Zerbe:]

You're welcome. And then with respect to animal health that was your second question. Principally speaking, the regulatory procedure for approving an animal health product is more or less identical with the procedure that applies to human medical products. So there's not much of a difference. And also with respect to timing, there is, practically speaking, no difference. And we have to perform the same safety studies phase one, phase two study. It's pretty much the same as with the human products.

[Unidentified Analyst:]

So you will be looking at a runway probably several years before this product would come to fruition. Is that correct?

[Horst Zerbe:]

That is to be expected. Yes.

[Unidentified Analyst:]

Thank you very much. And again, all the best to you and your staff, and congratulations.

[Horst Zerbe:]

Thank you.

[Operator:]

And we will take our next question from . Go ahead. Your line is open.

[Unidentified Analyst:]

Hello, Dr. Zerbe and Andre, congratulations on the recent progress. I have a couple of questions. First, what do you expect the timeline to be on the application for the Toronto Stock Exchange?

[Horst Zerbe:]

Andre do you want to respond?

[André Godin:]

Yes. I will. I mean, we start the process already or I would say probably couple of weeks now. They need to, I mean, there's been a lot of information exchange and they need to submit our application in front of their committee and that should happen this month. So after the committee, if the committee accept the listing application, then we could start trading on the TSX maybe probably five to seven days after that. So if everything goes according to plan we are expecting will be trading on the TSX this month.

[Unidentified Analyst:]

One more question. Am I accurate in the fact that we would be paying Tilray royalties on the revenues from heritage?

[Horst Zerbe:]

Yes, that is correct. They take out a small single digit percentage.

[Unidentified Analyst:]

And what was the thinking in entering into an exclusivity agreement with them without any guarantees that they ever actually bring a product to fruition through us?

[Horst Zerbe:]

Well that's a good question. When we entered into negotiations for an agreement with them there was a lot of excitement and hype around that they were trading sky high and they had very strongly suggested that they are very anxious to move the film part forward and then as time progressed for reasons that have never been very clear to us, the interest began to decline. But again, we never were provided any concrete insight into their decision making with respect to this at all. We then try to deal with that situation. I think we did that quite successfully by negotiating with them to get rid of the exclusivity so as to be able to get our CBD film to the market which we had developed by then. So that's really all I can say, we don't really have that much insight into their decision making process and even less so when they were tied up with their merger discussions with Atria at that point, there was complete silence.

[Unidentified Analyst:]

Okay, thank you. And again, look forward to what to come. Thank you.

[Horst Zerbe:]

Thank you.

[Operator:]

And it appears we have no further questions at this time. I will now turn the call back to Dr. Zerbe for any closing or final remarks.

[Horst Zerbe:]

Yes. Thank you very much. And I would again like to thank our shareholders for the continued support that we have been enjoying. And as always, I want to thank our staff, our employees for their continued hard work. So again, thanks to everybody. And that concludes the call. Thanks and bye, bye.

[Operator:]

This does conclude today's program. Thank you for your participation. You may disconnect at any time.