IntelGenx Technologies Corp.
Q2 2021 Earnings Call Transcript

Published: 4 Aug 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the IntelGenx Technologies Corp. Second Quarter 2021 Call. . At this time, it is my pleasure to turn the floor over to your host, Abby Hardy . Ma'am, the floor is yours.

[Unidentified Company Representative:]

Thank you, operator. 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 Andre 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. We do not undertake any obligation to update any forward-looking statements, except as may be required by U.S. and Canadian securities laws. A number of assumptions were made by us in preparing these forward-looking statements, which are subject to risks, and results may differ materially. Details on these risks and assumptions can be found in our filings with the U.S. and Canadian Securities Commissions. I would now like to turn the call over to Dr. Zerbe. Horst?

[Horst Zerbe:]

Thank you, Abby. Good afternoon, everyone, and thank you for joining us for the IntelGenx Second 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, Andre will review our Q2 2021 financial results. Then, and as always, we will open up the line for your questions. I'll begin with our atai partnership. Our strategic partnership with ATAI Life Sciences expanded during the second quarter where we entered into a second feasibility agreement, this time for the development of a novel formulation for Salvinorin A. Salvinorin A is a naturally occurring psychedelic compound that is being developed for the treatment of treatment-resistant depression and other indications. Under this agreement, IntelGenx will conduct formulation development work and provide a prototype to atai for further clinical investigation. If this work is successful, the parties would enter into an exclusive, royalty-bearing commercialization license, as contemplated in the agreement. This agreement represents another opportunity to integrate our film technology with atai's existing pipeline while further establishing IntelGenx as a leader in the novel therapeutic field of psychedelics. We look forward to continuing to work exclusively with atai on psychedelic, entactogenic and/or oneirophrenic compounds for the prevention or treatment of mental health disorders. Because the film application reduces and sometimes completely eliminates first-pass metabolism, concomitant administration of monoamine oxidase inhibitors with psychedelics will likely not be necessary, which we believe can add significant value to atai's development programs to the extent that they involve our film technology. Earlier today, we were pleased to announce the appointments of 2 atai delegates to our Board of Directors. Dr. Srinivas Rao has over 19 years of professional experience in the pharmaceutical and biotechnology industries, and he currently serves as the Co-Founder and Chief Scientific Officer at atai. Frank Stegert is currently atai's Vice President of Investment Management and Operations. On behalf of the Board and everyone at the company, I'm very pleased to welcome Srini and Frank to our team, and we look forward to their contributions as we continue to execute on our growth strategy. Now moving on to RIZAPORT. We continue to work with Exeltis, our RIZAPORT commercialization partner, in 27 European Union countries; and LTS, our Germany-based contract manufacturing partner, to prepare for the commercial launch of RIZAPORT in Spain early in the third quarter. Consistent with Exeltis' right to commercialize the product in most other European countries, LTS has the potential and the capacity to for other European markets. First, RIZAPORT. Spain, the first commercial batch has been successfully manufactured and was shipped to Exeltis for the Spanish launch. The second and third batch are being manufactured as we speak. Since most businesses are closed in Spain during the month of August, as a matter of fact, Spain as a whole is practically closed, Exeltis has decided to launch the product in September when business activities resume. As far as U.S., the first resubmission batch was successfully completed and has been placed on stability. Batches 2 and 3 are being manufactured, and upon completion of 6 months accelerated stability testing, we plan to meet with FDA to agree on details of the resubmission. Moving on to tadalafil. The revised protocol for the irritation study that FDA requested in the complete response letter was submitted to the agency and recently approved. Duration of the study will be 8 months. On the BD front, partnering discussions are advancing, and our goal is to finalize a deal with our prospective commercialization partner in the third quarter of 2021. Term sheet was recently signed, and the parties are working on the definitive licensing and supply agreement. Now a few words on cannabis. We reported previously the manufacturing and shipment of product for the planned launch of our CBD film in Australia via our commercialization partner, Heritage. And to clarify, Heritage is not going to commercialize itself in Australia. Rather, they do that through partnerships with 2 Australian companies. A short while ago, we received an order from Heritage for the manufacturing of launch quantities for the intended launch of the product in Canada. Manufacturing of those batches is ongoing. Now moving on to Montelukast. A little bit of introduction. We, over the past weeks and months, received a number of inquiries from shareholders and stakeholders regarding the resumption of our BUENA study, which, as you know, had been put on hold mostly due to COVID. So we decided to look into resuming the study. And last week, we announced that we received subscriptions from investors in the United States for USD 2.1 million principal amount of 8% convertible notes due July 31, 2021. That money will be exclusively earmarked for the continuation and the completion of the BUENA study. That was the sole purpose of raising that money. We plan to resume the study under the amended protocol with higher daily dose and have submitted stability data for the high-dose film to Health Canada in order to obtain approval for shelf life extension, which is required to continue the study. We are also in discussions with the are involved in the monitoring of the study to prepare for the resumption of the recruitment later in the fall. In the meantime, we continue to evaluate the trial's expansion to the United States via an IND filing, and we requested an IND number from the FDA. Now on animal health. We entered into a material transfer agreement with an undisclosed global veterinary health company who will evaluate our VetaFilm platform in cats. If the evaluation is successful, we intend to enter into negotiations with this partner for a development agreement in the veterinary field. And this agreement represents another step towards establishing VetaFilm as a new standard for pets and helps position IntelGenx at the forefront of the oral veterinary film field. And with that, I would now like to turn the call over to Andre for a review of our financial results. Andre?

[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 second quarter of 2021. The total revenue for the 2021 second quarter amounted to $162,000 compared to $42,000 in the same period last year. The 286% increase in revenue is attributable to $120,000 increase in R&D revenues. Operating costs and expenses were $2.1 million for Q2 2021 versus $1.8 million for the corresponding 3-month period of 2020. The increase is mainly attributable to $158,000 increase in manufacturing expenses, $132,000 increase in SG&A expenses and increase of $23,000 in depreciation of tangible assets. Those amounts were partially offset by a $37,000 decrease in R&D expense. One of the factors for the increase in operating expenses was related to the COVID-19 government assistance program received in 2020 but not in 2021. For Q2 2021, the company had an operating loss of $1.9 million compared to an operating loss of $1.8 million for the comparable period of 2020. Adjusted EBITDA was negative $1.7 million for Q2 2021 compared to negative $1.5 million for the same period last year. The net comprehensive loss was $2.5 million or $0.02 on a basic and diluted per share basis for Q2 2021 compared to net comprehensive loss of $1.2 million or $0.01 per share for the comparable period 2020. As at June 30, 2021, the company's cash and short-term investment totaled $12.1 million. This includes the total gross proceeds of approximately $12.3 million from atai initial purchase of 37.3 million shares of our common stock and $22.38 million in warrants. As a result of this investment, which closed in May, atai now owns approximately 25% of IntelGenx issued and outstanding common stock. These funds will enable us to continue advancing our portfolio of innovative film products and product candidates. As Horst mentioned earlier, subsequent to the quarter end, we received subscription for U.S. investors -- from U.S. investors, sorry, for $2.1 million in principal of an 8% convertible debenture note due July 31, 2025. We intend to use the proceeds to finance our Montelukast study, and the closing is now imminent. Last quarter, we submitted a listing application to the TSX, which is subject to IntelGenx meeting all of the listing requirements and obtaining the approval of the Toronto Stock Exchange. While the process has taken much longer than initially anticipated, we believe that the company should receive an answer shortly. That said, there is no assurance that the Toronto Stock Exchange will approve the listing application. If and when approved, we believe our graduation to the TSX will increase our visibility and is a necessary progression as we structure our company for the long term. I will now turn the call back to Dr. Zerbe. Horst?

[Horst Zerbe:]

Yes. Thanks, Andre. And in closing, I'd like to once again recognize our team for continuing to execute on our long-term strategy and also our Board and our shareholders for their continued support. 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:]

. And our first question comes from Ashaint Rao .

[Unidentified Analyst:]

So when do we actually start generating money? We have been proclaiming to use the 505(b) route and yet, in the last 8 to 9 years, failed to bring any drug other than the , which was again not on different technology. We've not met one milestone. We keep shifting our milestones all the time. If only if all the agreements earned a dollar per agreement, we would probably have more or higher revenue than what we currently have. We goofed up and tadalafil, RIZAPORT. And just wanted to understand, when are we actually going to start making money because the RIZAPORT deadlines in EU are not being met. They've been pushed like for 4 years now. What can you tell us about when shareholders will start making money, except for funding your lifestyles?

[Operator:]

Our next question comes from Sam Lynson .

[Unidentified Analyst:]

I just had a question about the recent convertible notes that I believe Andre just mentioned, and I joined the call a little bit late. I'm sorry if I missed this earlier on, but I noticed that the notes are convertible to common stock at $0.40, which was about the price of the stock when the announcement was made. And so they seem to have all of the upside of owning the stock. And at the same time, if the stock happens not to appreciate or depreciate or while you're waiting for the stock to appreciate, you get an 8% interest rate. So it seems like a terrific deal for the buyers of the notes, maybe not so much of a deal or not so much of a good deal for the company. And my question is, given the recent investment that we had from atai, why are we not able to raise capital on more attractive terms than this convertible note offering? That's the question I had.

[Horst Zerbe:]

Andre, do you want to respond to that?

[André Godin:]

Yes. Yes, I will. I mean a convertible note is an instrument that is often used in financing companies. I mean if you look around, you'll see that it's also a privileged way to raise money. And 8% interest is really standard. I mean, we're -- there's no premium on the interest rate. And yes, I mean, right now, the stock has appreciated since we announced that we had received the subscription, but there's no guarantee that you will actually make money with the conversion. So the stock was lower than $0.40. So we basically -- the subscriptor, they actually paid a premium to get the note. I mean it's good to see the stock moving up, but that's good for everyone, not only for the noteholder. And we also have a loan with atai at the same interest rate. So basically, we're trying to diversify our source of financing. And when atai invested initially the $12.3 million, that is for all our program, including atai's program, but Montelukast was not part of it. So we didn't want to use the proceeds from the atai investment to fund the Montelukast study. And since we feel that there is a big upside with that study, we decided to go out and raise sufficient money to resume the trial with .

[Unidentified Analyst:]

Yes. And that was going to be my next question, as to why we needed the money, but okay. It just seems to me that, you're right, 8% maybe might be standard, but -- or the stock appreciating is good for everyone. But if I own the stock, I don't get 8% while I'm waiting for it to appreciate, whereas the holders of the convertible notes do. I just felt that since we're giving that advantage, we should have been able to either get lower than 8% or a higher than $0.40 conversion. So I was just befuddled as to why we were not able to get better terms. But I assume, obviously, it was competitively bid, right, and this was terms that we were able to get.

[André Godin:]

Yes. Let's not forget that when we raise equity, it rarely comes as a unit of 1 common stock. So there's often, if not almost every time, a warrant coverage. So either it's half a warrant, a full warrant. In the case of atai, it was about 75% coverage with warrants. So the tricky part is when you issue stock and warrants, it's much more dilutive than when you go via the convertible note route because there's always a possibility for us to pay it back and not being converted, so no dilution to the shareholders. So it gives us the flexibility, which we don't have if we go for a standard public offering, which would be much more dilutive.

[Operator:]

Our next question comes from Jeremy Levin .

[Unidentified Analyst:]

Yes. Just had a quick question. I wanted to know if there's any kind of time line you can give us on the VetaFilm study and what would be the next steps to when that comes to a conclusion.

[Horst Zerbe:]

What I would like to do to respond to that question actually turn over to Dr. Matzen. Dana also happens to be on the call. She is our VP of Business and Corporate Development, and she has been handling all the negotiations with that animal health company. So Dana, can you respond to that?

[Dana Matzen:]

Of course, yes. So we are in -- as Horst mentioned, we are expanding on our VetaFilm, and we are actually in discussion with several companies. So from a time line perspective, I would imagine that we can see some sort of announcement probably coming out in the next quarter. But the -- with the company that is doing the study in cats there, they're running the trial. They need to see how the platform performs in cats. Cats are very challenging animals to dose. And we would expect to see some outcome of that also in September, October, and then if it's successful, we would start the negotiations. So stay tuned. But at the moment, in BD, nothing is done until we see signatures.

[Operator:]

Our next question comes from Colin Taylor .

[Unidentified Analyst:]

Been a long-time investor, and I have two questions. My first question is I've been confused over the years on what the company's objectives are as a business. And maybe the 25% giving away shares kind of took me off by surprise. And what is the company's business objectives? Is it to make profit in the next year, 2 years, positive cash flow? Could you please help me on that?

[Horst Zerbe:]

Yes. I think the answer to that is fairly simple. We, I think, are on a good way to turn the company around. We expect to launch -- several points. I mean I reported imminent launch activities that are ongoing for our migraine film and for the cannabis film. Those launch activities will continue. So in the 2-year time frame, we expect to see -- to have the company turned around and post profits. Andre, if you want to add to that, but that would be my response to that.

[André Godin:]

Yes. I mean the only thing I can add to that. You were surprised by -- one of the things you mentioned is that you were surprised by the 25% investment. For us, we really see it as a strategic partnership. So atai will bring in a pipeline of products in the short, mid- and long term. So -- and that will generate, obviously, revenue for us, I mean, development revenue to start with. And eventually, when they go commercial, it would be probably a split of royalty and manufacturing margin. But also, at the time when atai made the investment, the situation was difficult, and the timing was perfect because they came in with money, and they're willing to support us and work with us in the long term. So we really saw that as a turning point for the company for the best.

[Horst Zerbe:]

If I can just briefly add to that because it's really an important aspect of what we're doing here. For a drug delivery company like IntelGenx, the purpose is not just making films and making them a little cheaper than the competition. The challenge for us has been to find a strategic niche that we occupy as a -- as the first company and where we can claim some initial ownership. And that, through the atai investment, has become the psychedelic space. The partnership with atai allows us to play a significant and a leadership role in the psychedelic space. And with that, moving forward, we have defined clear objectives and, as I mentioned before, plan to turn the company around.

[Operator:]

Our next question comes from Robert Buzby .

[Unidentified Analyst:]

Yes, Dr. Horst. A number of months ago, IntelGenx entered into a partnership with Cybin to produce psychedelics. And today, you mentioned you have an exclusive relationship with atai to produce psychedelics. I find that a bit confusing. Do you still have that partnership with Cybin?

[Horst Zerbe:]

Yes. Thanks for that question. And I have to agree, at first glance, it sounds a little confusing, but here is a situation. The deal that we have with atai -- I'm sorry, with Cybin is limited to developing a formulation that they can use for initial clinical evaluation. There is no commitment or there are no commercial rights that Cybin would have down the line to our formulation and intellectual property. To that extent, the relationship that we have with atai is an exclusive one. So did I make that clear enough?

[Unidentified Analyst:]

Well, so that will eliminate the possibility of producing the strips for Cybin?

[Horst Zerbe:]

Well, a condition for us to enter into the partnership with atai was that we give them exclusivity for the psychedelic space. Unfortunately, the deal that we had previously entered into with Cybin was limited to this feasibility experiment that we're conducting.

[Operator:]

Our next question comes from Eric Herb .

[Unidentified Analyst:]

I had two questions. First, I was just curious, an update on the TSX uplifting. During the last call, you mentioned that it could be done in a shorter period of time. Has there been a holdup? Or what's the outlook at this stage?

[André Godin:]

Yes. There is no holdup, but we were initially told that the process would not take as long. So -- and since we qualified, there's obviously criteria that you need to meet in order to uplist, and we met those criteria, especially after the atai investment. So we're told that it was going to take maybe 4 to 6 weeks. But I think right now, they're a little bit overworked, and it has just taken a little bit longer than we expected. But I think we're really at the last stage now. Everything has been provided. They seem to be happy with everything that they have and the processes they have to go in front of the committee, which will review the application, after which they give you the uplist or they don't. But this process is very, very close. So it's within probably 5 to 7 days, and after that, if everything goes according to plan, then we could potentially start trading a few weeks after that. So hopefully, this time, the time line would be respected based on what we know now, but I have to admit that we were a little bit surprised by the time it took. I mean it came to us as a surprise because this is not what we were told initially, but that's definitely quite an accomplishment.

[Unidentified Analyst:]

Well, that's great to hear that there weren't any issues and that it's still on track. And then the second question on the Heritage. Dr. Zerbe, you mentioned a second order, and you said it was a large order. Are you able to indicate any more information on how large that order is?

[Horst Zerbe:]

Dana, I believe there is a confidentiality obligation. So I would not be very comfortable to disclose it, but it is significantly larger than the initial order that we manufactured and shipped.

[Unidentified Analyst:]

And that first order was shipped at the end of March, and I've still not seen that on the market. Are those ones going to Australia? Is that what you had said?

[Horst Zerbe:]

Yes. At least -- well, practically all of it. The reason why you haven't seen any of that is quite simple. The Australian commercialization partners are interacting with Australian authorities to make sure that the product meets Australian requirements as far as GPP, TMP and whatever other regulatory require. That process is now almost, I would think, practically completed. So we expect to see a product on the market pretty soon.

[Unidentified Analyst:]

Excellent. And then I had read a news release from Heritage Cannabis about the release of the CBD film in August. Are you manufacturing for that release that they've announced?

[Horst Zerbe:]

I'm sorry. Can you please repeat your question? You broke off partially, so I didn't really get the question.

[Unidentified Analyst:]

On the Heritage Cannabis website, there was a news release about the impending or imminent release of CBD film in August. Is that what we're manufacturing for now?

[Horst Zerbe:]

Dana, I'm not aware of that. Can you respond to that? Do you know anything about that? I'm not aware of any such note on the Heritage website. I'm sure there is, but I'm just not familiar with that. Do you know anything about that?

[Dana Matzen:]

Yes. So Heritage had a note out about the business update, and I think they mentioned the launch and I think the brand, they have already a brand name for our product. That's . So yes, you are correct in mentioning it. I haven't checked it recently, but they have been announcing that they're launching this brand. Yes, this is the -- and we are manufacturing for that launch right now. So Heritage only has the CBD from just us.

[Operator:]

Our next question comes from Hugh Tyler .

[Unidentified Analyst:]

Yes. A couple of quick questions. Dr. Zerbe, in the last earnings call, you talked about potential follow-up discussion with Tilray. Anything to report on that?

[Horst Zerbe:]

I can't talk about that. The, let me say, conversation with Tilray is ongoing, but I cannot disclose anything about that. That's an ongoing proceeding.

[Unidentified Analyst:]

Okay. I appreciate that. And the two other quick questions on the partnership with Insud, is that -- initially, there was a couple or four products on your pipeline chart, and I think we're down to migraine and one other. Is there any chance they'll be coming back to the table with additional requests for development projects?

[Horst Zerbe:]

I mean that is quite possible, but right now, the focus is really on getting the migraine film out, which, as I mentioned before, is imminent. We expect the product in early September to be on the market in Spain. And then we have a development ongoing with a U.S. subsidiary, which is also progressing quite well. That's the focus right now. I don't think -- I think it would be very premature to discuss any potential follow-ups.

[Unidentified Analyst:]

Okay. And my last question. I appreciate you answer there, Dr. Zerbe. The VevaDerm, any potential partners on that product?

[Horst Zerbe:]

I'm sorry. Which one?

[Unidentified Analyst:]

VevaDerm. The patch you have, the on-patch for the transdermal patch.

[Horst Zerbe:]

Yes. Yes. That is ongoing. Dana, again, you are directly involved in the negotiations on that. If you want to comment on the current status, so go ahead.

[Dana Matzen:]

Yes. At this moment, we are in negotiations, but I would -- it would be too early to announce or to give any further indications who we're talking to. So it's still all in the works, but we're working on it.

[Unidentified Analyst:]

Okay. And real quick, going back to the other gentleman's question on Cybin. If their Phase IIa and IIb are successful using the IntelGenx VersaFilm, is there any chance that you would go into a production agreement with them? Or is that locked up by atai?

[Horst Zerbe:]

At this point, first of all, to correct you, the material that we're making is not for a Phase II. And what we do -- what we have contractually agreed upon for such a study, it's for an earlier study. But frankly, at this point, you can -- you never know what's going to happen in the future, but as the situation stands right now, I think that is a very unlikely scenario.

[Operator:]

Our next question comes from Brent Gakey .

[Unidentified Analyst:]

I was just wondering how confident you are that RIZAPORT is going to launch in September. It seems like the target date keeps getting moved back. Earlier this year, it was the end of -- or sometime in June, I think, and then it was early third quarter, and now we're into September.

[Horst Zerbe:]

I mentioned that in my introductory remarks that Spain is closed in August. There are virtually no business activities whatsoever. Everybody in Spain is on vacation, and so it simply doesn't make any sense to launch a product in August. That is why the launch, that is the one and only reason -- at least as far as we know, but we are certain that is correct. That's the one and only reason as to why the launch is occurring in September. So at this point, I repeat myself, our confidence level is as high as you can possibly think.

[Operator:]

That was our final question. I'd like to turn it back over to Horst for closing remarks.

[Horst Zerbe:]

Yes. So again, thanks to everybody on the call and all our shareholders and stakeholders for your continued support. And with that, we'd like to conclude our Q2 2021 call. Thanks to everybody.

[Operator:]

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.