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Within the pharmaceutical sector it can be very hard to find a company that has the potential to grow substantially over the next few years. Often, investors shy away from the pharmaceutical sector simply because of the risks involved: from FDA decisions, to the launch of a product, the sector is fraught with risk. However, for those investors who are willing to take a chance, there is also the potential for significant gains. One particular company with a large amount of potential is IntelGenx Technologies (OTCQX:IGXT), this company already has a product on the market and may soon have another product on the market. IntelGenx also has a very promising pipeline which should help to drive long term share price growth.
Forfivo XL
It is relatively rare for a company with the market capitalization of IntelGenx to have a product on the market. This product will be discussed a little later on in the article, however, I think it is important to talk about why the fact that they have a marketed product is important. Besides helping to generate some revenue, at essentially no cost (thanks to a partnership agreement), this approval is important because it validated the fact that IntelGenx can successfully oversee a product going through the various stages of development and all of the way to FDA approval.
The product that IntelGenx has on the market is Forfivo XL. This drug is simply a higher dose version of Wellbutrin XL (a drug that is indicated for depression). The key benefit to Forfivo is that it does not require multiple pills in order to get the required dosage, as Wellburtrin would. Forfivo is marketed through a commercialization agreement with Edgemont pharmaceuticals. The agreement gave Intelgenx a small upfront payment and provides for them to get royalties on sales of the drug. The important part is that Intelgenx is getting this revenue at no cost, as the other party absorbs all of the costs of marketing the drug in the United States. The company could see even more good news in the unexpected event that the drug begins to meet its sales milestone. While this is not necessarily likely, it is an externality which would have the potential to substantially increase the share price in the event that these sales milestones are met.
For the nine months of 2013, the drug contributed a total of $0.3 million in revenue. While this would be miniscule, considering that the net loss was only $1.0 million, it would seem as though the drug is making a substantial dent in their net loss. Management in the company, however, realizes that royalty revenue has been disappointing from the drug so far and mentioned in their 10-Q that they are actively taking steps to improve the sales of the drug. Should management be successful in their initiative this drug could help to provide compelling shareprice growth for current shareholders. Another possible driver of sharprice growth would be if IntelGenx and their partner are able to crush Wockhart Bio and other companies who are attempting to receive permission to make a generic version of Forfivo XL. It is important to note that with generic challenges, as soon as IntelGenx files a lawsuit the FDA is prevented from approving the drug for at least 30 months, so the recent Paragraph IV certifications should not be an issue, however, a courtroom victory could help to extend the life of Forfivo XL and subsequently help Intelgenx's bottom line. However, I expect other drugs in IntelGenx's pipeline to be the drivers of growth in the future.
Anti-Migraine Versafilm Product
This product is the most immediate driver of growth for Intelgenx. I also believe, as discussed below, that this product will have substantial revenue for potential for Intelgenx and will help to increase the shareprice over the long term. The product is currently co-developed with RedHill bio.
The first important thing to discuss, before getting into the possible revenue for Intelgenx, is to realize what the product is and why it has so much potential. The Versafilm product is an oral-film product that delivers the drug Rizatriptan, which is marketed by Merck Pharamceuticals under the trade name Maxalt-MLT. The primary benefit is that Intelgenx's version would be much easier to use, as currently Merck only markets the product as an orally disintegrating tablet, so the usability benefit would be for customers who still have a hard time with oral disintegrating tablets. These benefits could be especially important for elderly patients, as well as children, who struggle with tablets. Rizatriptan is designed to have a short Tmax, which means that compared to other triptan-based drugs that it has a very short time to take effect. The bioequivalence of Intelgenx's product means that it would also share this benefit.
Now, turning towards my favorite part which is actually the revenue potential for the product. In 2012, the sales of Maxalt were $638 million. Another important number is the fact that the US Migraine market for tablets is $2.5 billion and is projected to continue to grow. Due to the fact that Intelgenx's product is bioequivalent to Maxalt, this provides a logical starting point for trying to provide a calculation basis for the revenue potential. A large amount of the revenue projections will depend on whether or not Intelgenx and Redhill decide to sign on a commercialization partner, and if they do the marketing prowess of a commercialization partner should help sales. Currently, Redhill (RDHL) holds the worldwide commercialization rights for the product and will have to pay Intelgenx royalties and milestones on sales of the drug.
Even if we assume that IntelGenx and its partner capture a measly 20% of Maxalt's market (however, given the benefits of the drug it could be much more), that would mean that there would be over $100 million in revenue for Intelgenx's partner and subsequently substantial revenue for Intelgenx.Intelgenx would be very profitable at that pace. With the possibility of getting up to 70% of the revenue for the product, this would make Intelgenx a very compelling target for long term growth. Even if we assume that with over $100 million that Intelgenx gets $20 million, this would still make Intelgenx profitable and would help to provide a baseline cushion from which the stock can help to anchor a larger run. Redhill is in charge of identifying a development partner for the product.
We do know the terms of the license agreement. While in the press release linked above, Intelgenx did not disclose the terms of the agreement. Redhill did disclose these terms:
" In addition, we are required to make royalty payments to IntelGenx Corp. of 20% of net sales if the product is marketed by us and 60% of the first $2 million of net sublicense fees, and 40% of net sublicensing fees thereafter, in if the product is marketed by sublicensees. However, if we bare the regulatory costs in a sublicense arrangement, the royalties will be 20% of net sublicense fees until we recover these costs, plus 10% interest, and if IntelGenx Corp. bears such costs, royalties will be 70% of net sublicense fees."
The terms of the agreement are rather favorable to Intelgenx and depending upon who Redhill is able to attract to market the product, Intelgenx could receive significant amounts of royalties heading into the future.
The drug is an immediate catalyst for IntelGenx investors, as it has a PDUFA date of February 3, 2014. This approval is important for another reason though, an approval would help to validate Intelgenx's entire versafilm drug delivery platform (upon which most of its future products are based). An approval would help to make it clear that this technology works and would help to improve the calculations as to the chance for approval for the remaining Versafilm products in Intelgenx's pipeline. This FDA decision being one that validates Intelgenx's entire drug delivery technology I would expect for a significant increase after the approval. It is also important to note that upon FDA approval of the product, Intelgenx will receive a milestone payment of $500,000. For more insight as to how the FDA approval process can impact the share price potential of a company click here.
Other drugs under development using Versafilm
As I previously mentioned, Versafilm will be very important for Intelgenx's overall growth prospects. Intelgenx is also rather substantially invested in the technology and has a Tadalafil film (for erectile dysfunction). This product is expected to enter bioequivalency trials in the first quarter of 2014, which would represent a significant milestone for investors coming on the heels of the FDA decision. This bioequivalency trial, if successful, would help to improve the shareprice as the product heads toward FDA approval. Tadalafil is the drug Cialis, currently marketed by Eli Lilly.
The product is currently unpartnered, and should Intelgenx find a partnership, that can also help to provide an increase in the sharprice of the company. The bright news for investors is that the longer Intelgenx waits to land a partner, and the better the bioequavilency data, the more of an upfront payment that I would expect. It is also important to note that the longer they wait, the more likely it is that Intelgenx will get a large amount of royalties on sales as the partner will be in terms of their decision making calculating in a higher likelihood of US approval (the approval of the anti-migraine product could also help these discussions).
Another product under development utilizing the Versafilm technology is a Buprenorphine/Nalaxone product that is currently under development by Par Pharmaceuticals (HITK). The product utilizes Intelgenx's technology and as such Intelgenx will receive royalties on any US sales of the product. The company recently announced that Par Pharmaceuticals submitted the ANDA for the drug on July 22, 2013. This product has significant revenue potential for Intelgenx as US sales of buprenorphine sublingual film were $1.5 billion in 2012.
It is important to note that it seems as though the development was going well, as Intelgenx recently announced yet another agreement with Par Pharmaceuticals, in which the companies will be developing two new products with the technology.This agreement might seem rather unimportant at the moment, but it is very important for the future. First of all, a close alignment with a large pharmaceutical partner like Par Pharmaceuticals is good for Intelgenx but more telling, the fact that Par was willing to expand their partnership would suggest that Par is confident in the technology and more importantly seems to like what it has been seeing out of the initial results. This agreement with Par will add some products to Intelgenx's development pipeline and over the long term has the potential to generate significant revenue back to Intelgenx.
The upcoming FDA decision should help to validate Intelgenx's Versafilm technology platform and will help in future negotiations. Intelgenx is targeting drugs that have significant sales with its Versafilm products and the ability to attract large partners with the technology will help to increase the long term potential of the product.
Financial Position
An important consideration for any small cap pharmaceutical company is the financial position. Especially when a company has a deep pipeline like IntelGenx investors want to take a look and try to insure that they will not be diluted heading into the future. The dilution point is crucial for long term oriented investors as cheap dollars for the company now might cost shareholders substantially in the future. As a shareholder you want to make sure that you are not going to be substantially diluted, or that if you are diluted that the company has a promising pipeline that is progressing successfully through the requisite trials.
It appears as though Intelgenx is in a rather good financial position. Intelgenx has a solid cash position, at the end of September 30, 2013 it had $2.6 million. The cash balance is likely much higher for the current quarter, as Intelgenx recently announced that they closed an offer of $3.5 million worth of stock.
The cash cushion, when enhanced by the $3.5 million, should be more than sufficient to see Intelgenx's current pipeline through development, considering that over the previous nine month period Intelgenx lost a total of $1.9 million. Intelgenx has $0.8 million in revenue for the last nine months (of which $0.3 million was from Forfivo XL).
While some of the revenue that Intelgenx received was indeed non-recurring, I would expect that development milestones on their other products, along with a possible commercialization agreement for the anti-migraine product will help to offset this loss of revenue.
It is also important to note that the expenses at Intelgenx will likely increase as the Tadalafil film product enters its pivotal bioequivalency testing, however, with the added revenue from the approval of the anti-migraine versafilm the impact of these expenses should be negligible over the long term.
Intelgenx appears to be well positioned financially for future growth, and does not present any immediate risk of dilution to investors given its recent financing. Also, the possible increase in revenue from the Anti-Migraine product should help to improve the financial numbers at Intelgenx even more. The financial position is good enough to merit serious long term investment considerations and has the company well positioned for long term growth.
Conclusion
With a relatively low cash burn rate and a large pipeline it seems as though Intelgenx is uniquely positioned to provide investors with substantial returns. The expanding partnership with Par Pharmaceuticals should be encouraging for investors, and the immediate catalyst of the FDA approval decision for the anti-migraine product should help to encourage investors to seriously look at the long term prospects of Intelgenx. Intelgenx's pipeline developments provide many potential catalysts for long term oriented investors. With the low cash burn rate and the high potential, as well as the ability to attract rather large partners, it appears as though Intelgenx could provide significant returns for long term oriented investors.
Disclosure: I am long IGXT, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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