IntelGenx Technologies Corp. - Quarter Report: 2013 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ________

Commission File Number 000-31187

INTELGENX TECHNOLOGIES CORP.
(Exact name of small business issuer as specified in its charter)

6425 Abrams, Ville Saint Laurent, Quebec H4S 1X9, Canada
(Address of principal executive offices)

(514) 331-7440
(Issuer's telephone number)

_____________________________________________________
(Former Name, former Address, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [_]      No [_]

APPLICABLE TO CORPORATE ISSUERS:

51,298,422 shares of the issuer’s common stock, par value $.00001 per share, were issued and outstanding as of May 10, 2013.

IntelGenx Technologies Corp.
Form 10-Q

TABLE OF CONTENTS

IntelGenx Technologies Corp.

Consolidated Interim Financial Statements
March 31, 2013
(Expressed in U.S. Funds)
(Unaudited)

See accompanying notes

Approved on Behalf of the Board:

/s/ J. Bernard Boudreau                   Director

/s/ Horst G. Zerbe                              Director

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See accompanying notes

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See accompanying notes

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See accompanying notes

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Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction to Management’s Discussion and Analysis

The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of the financial statements that enables investors to better understand the business of the Company, to enhance the Company’s overall financial disclosures, to provide the context within which the Company’s financial information may be analyzed, and to provide information about the quality of, and potential variability of, the Company’s financial condition, results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to continuing operations of the Company. Unless otherwise indicated or the context otherwise requires, the words, “IntelGenx, “Company”, “we”, “us”, and “our” refer to IntelGenx Technologies Corp. and its subsidiaries, including IntelGenx Corp. This information should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes thereto.

Company Background

We are a drug delivery company established in 2003 and headquartered in Montreal, Quebec, Canada. Our focus is on the development of novel oral immediate-release and controlled-release products for the pharmaceutical market. Our business strategy is to develop pharmaceutical products based on our proprietary drug delivery technologies and, once the viability of a product has been demonstrated, to license the commercial rights to partners in the pharmaceutical industry. In certain cases, we rely upon partners in the pharmaceutical industry to fund development of the licensed products, complete the regulatory approval process with the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies relating to the licensed products, and assume responsibility for marketing and distributing such products.

In addition, we may choose to pursue the development of certain products until the project reaches the marketing and distribution stage. We will assess the potential for successful development of a product and associated costs, and then determine at which stage it is most prudent to seek a partner, balancing such costs against the potential for additional returns earned by partnering later in the development process.

We have also undertaken a strategy under which we will work with pharmaceutical companies in order to develop new dosage forms for pharmaceutical products for which patent protection is nearing expiration. Under §(505)(b)(2) of the Food, Drug, and Cosmetics Act, the FDA may grant market exclusivity for a term of up to three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials, other than bioavailability studies, conducted by or for the sponsor.

We are currently continuing to develop the existing products in our pipeline and may also perform research and development on other potential products as opportunities arise.

We currently purchase and/or lease, on an as-needed basis, the equipment necessary for performing research and development activities related to our products.

We plan to hire new personnel, primarily in the areas of research and development, manufacturing, and administration on an as-needed basis as we enter into partnership agreements, establish our pilot plant VersaFilm™ manufacturing capability, and increase our research and development activities.

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Key Developments

On March 27, 2013 we announced that, together with our co-development partner RedHill Biopharma (“RedHill”), we submitted a 505(b)(2) New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for our anti-migraine oral film product.

We had previously announced a successful pre-NDA meeting with the FDA following the successful completion of a bioequivalency study demonstrating that our oral film product is bioequivalent with Maxalt MLT®, a leading branded anti-migraine product manufactured by Merck & Co. According to Merck's most recent annual report, sales of Maxalt® were $638 million in 2012. The thin-film formulation of Rizatriptan has been developed in accordance with the co-development and commercialisation agreement with RedHill.

Our orally disintegrating film consists of a thin (30 – 50 µm) polymeric film which disintegrates rapidly upon oral administration, thereby releasing the active drug Rizatriptan and making it available for rapid absorption. The film does not require water for administration.

Currency rate fluctuations

Our operating currency is Canadian dollars, while its reporting currency is U.S. dollars. Accordingly, our results of operations and balance sheet position have been affected by currency rate fluctuations. The following management discussion and analysis takes this into consideration whenever material.

Results of Operations for the three month period ended March 31, 2013 compared with the three month period ended March 31, 2012.

Revenue

Total revenue in the first three months of 2013 increased to $157 thousand, compared with $100 thousand in the same period of 2012.

All revenue recorded during the first quarter of 2013 relates to Forfivo XL™, our first FDA approved product, which was launched in October 2012 under a licensing partnership with Edgemont Pharmaceuticals LLP (“Edgemont”). Upon entering into the licensing agreement, Edgemont paid us an upfront fee of $1 million, which we recognized as deferred license revenue. The deferred license revenue is amortized in income over the period where sales of Forfivo XL™ are expected to be exclusive. As a result of this policy, we recognized $77 thousand in income during the first quarter of 2013. In addition, we recognized approximately $80 thousand of royalty income earned from the sale of Forfivo XL™. The royalties relate to sales of Forfivo XL™ by Edgemont during the first three months post product launch. Forfivo XL™ is indicated for the treatment of Major Depressive Disorder (“MDD”) and is the only extended-release bupropion HCl product to provide a once-daily, 450mg dose in a single tablet.

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Royalty income in the second quarter of 2013 is expected to be lower than royalty income achieved in the current quarter, as a result of lower than anticipated sales of Forfivo XL™ during the current quarter. Management is assessing this variation in sales performance with a view towards taking steps to support steady sales growth of Forfivo XL™.

Revenue for the three months ended March 31, 2012 relates to the receipt of a $100 thousand development milestone in respect of our anti-migraine project. The milestone became due following the successful completion of the pivotal bioequivalence study. In March 2013 we announced that, together with our co-development partner RedHill, we submitted a 505(b)(2) NDA to the FDA for our anti-migraine oral film product, a novel oral thin-film formulation based on our proprietary VersaFilm™ technology containing Rizatriptan, the active drug in Merck’s Maxalt-MLT® orally disintegrating tablets.

Research and Development (“R&D”) Expenses

R&D expenses, net of R&D investment tax credits, totaled $167 thousand in the three months ended March 31, 2013, representing a decrease of $72 thousand, or 30%, to the expense of $239 thousand recorded in the same period of last year.

The decrease in R&D expenses is primarily related to the costs incurred in the first quarter of 2012 that were associated with a pilot clinical study that were not repeated in the first quarter of 2013.

Included within R&D expenses for the first three months of 2013 are R&D Salaries of $153 thousand, of which approximately $3 thousand represents non-cash compensation. This compares to R&D salaries of $149 thousand in the first three months of 2012, of which approximately $5 thousand represented non-cash compensation.

In the three months ended March 31, 2013 we recorded estimated Research and Development Tax Credits and refunds of $35 thousand, compared with $25 thousand that was recorded in the same period of the previous year.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses increased by $17 thousand, to $456 thousand, in the first three months of 2013 compared with $439 thousand in the first three months of 2012. The increase is primarily attributable to the addition of Dr. Rajiv Khosla to our management team in a senior consulting capacity ($53 thousand), increased public relations efforts with the appointment of a public relations consultant in May 2012, together with the appointment in July 2012 of an online communications & marketing firm specialized in social media ($21 thousand), partly compensated by a reduction in investor relations expenses of approximately $20 thousand, and a foreign exchange gain of $12 thousand in the first three months of 2013 compared with a foreign exchange loss of $48 thousand in the first three months of 2012. The foreign exchange gains and losses relate primarily to currency fluctuations between the Canadian dollar and the U.S. dollar.

Included in SG&A expenses are approximately $5 thousand (2012: $3 thousand) in non-cash compensation from options granted to management employees in 2011 and 2012, $4 thousand (2012: $6 thousand) in non-cash compensation from options granted to non-employee directors in 2011, and $6 thousand (2012: $Nil) in non-cash compensation from options granted to consultants in 2012.

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Amortization of intangible assets

The amortization of intangible assets expense for the first three months of 2013 totaled $10 thousand, compared with $Nil in the same period of last year. The expense relates to the amortization of NDA acquisition costs in respect of the final progress payment to acquire 100% ownership of Forfivo XL™. Commercialization of Forfivo XL™ in October 2012 triggered amortization of the asset over its estimated useful life of 39 months.

Share-Based Compensation Expense, Warrants and Stock Based Payments

Share-based compensation expense, warrants and share-based payments totaled $18 thousand for the three months ended March 31, 2013, compared with $15 thousand for the three months ended March 31, 2012.

We expensed approximately $8 thousand in the first three months of 2013 for options granted to our employees in 2011 and 2012 under the 2006 Stock Option Plan, and approximately $4 thousand for options granted to non-employee directors in 2011, compared with $5 thousand and $6 respectively that was expensed in the same period of the previous year.

We also expensed $6 thousand in the first three months of 2013 for options granted to consultants and $1 thousand in the first three months of 2012 for options granted to investor relation firms for investor relation services.

There remains approximately $53 thousand in stock based compensation to be expensed in fiscal 2013 and 2014, of which $42 thousand relates to the issuance of options to employees and directors of the Company during 2011 and 2012 and $11 thousand relates to the issuance of options to consultants in 2012. We anticipate the issuance of additional options and warrants in the future, which will continue to result in stock-based compensation expense.

Key items from the Balance Sheet.

Current Assets

Current assets totaled $2,670 thousand at March 31, 2013 compared with $3,656 thousand at December 31, 2012. The decrease of $986 thousand is attributable to a decrease in accounts receivable of approximately $1,112 thousand and a decrease in prepaid expenses of approximately $13 thousand, partly offset by an increase in cash and cash equivalents of approximately $109 thousand and an increase in investment tax credits receivable of approximately $30 thousand.

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Cash and cash equivalents totaled $2,168 thousand as at March 31, 2013 representing an increase of $109 thousand compared to the balance of $2,059 thousand as at December 31, 2012. The increase in cash on hand relates to net cash provided by operating activities of $10 thousand, together with net cash provided by financing activities of $195 thousand, partly offset with net cash used in investing activities of $69 thousand and an unrealized foreign exchange loss of $27 thousand.

Accounts receivable totaled $170 thousand compared with $1,282 thousand as at December 31, 2012. Included within the accounts receivable balance as at December 31, 2012 is a $1 million milestone that was invoiced to Edgemont Pharmaceuticals in the fourth quarter of 2012 for the launch of Forfivo XL™. We received payment against this invoice in February 2013.

As of March 31, 2013, prepaid expenses totaled $89 thousand compared with $102 thousand as of December 31, 2012. The decrease relates to the allocation of prepaid expenses to the income statement for the first three months of 2013.

R&D investment tax credits receivable totaled $243 thousand as at March 31, 2013 compared with $213 thousand as at December 31, 2012. The amount receivable as at December 31, 2012 relates to credits accrued throughout fiscal 2012, for which we expect to receive reimbursement in the fourth quarter of 2013.

Leasehold Improvements and Equipment

As at March 31, 2013, the net book value of leasehold improvements and equipment amounted to $438 thousand, compared to $387 thousand at December 31, 2012. In the three months ended March 31, 2013 additions to assets totaled $69 thousand and comprised $68 thousand for pilot plant manufacturing equipment for our VersaFilm™ products and $1 thousand for computer equipment. Depreciation on leasehold improvements and equipment in the three months ended March 31, 2013 amounted to $10 thousand and a foreign exchange loss of $8 thousand was recorded.

Intangible Assets

As at March 31, 2013 NDA acquisition costs of $106 thousand (December 31, 2012 - $116 thousand) were recorded as intangible assets on our balance sheet and are related to the acquisition of 100% ownership of Forfivo XL™. The asset will be amortized over its expected useful life of 39 months and amortization commenced upon commercial launch of Forfivo XL™ in the fourth quarter of 2012.

Current Liabilities

Current liabilities totaled $806 thousand as at March 31, 2013 (December 31, 2012 - $1,366 thousand) and consisted of accounts payable and accrued liabilities of $498 thousand (December 31, 2012 - $1,058 thousand) and the current portion of deferred license revenue of $308 thousand (December 31, 2012 - $308 thousand).

Accounts payable and accrued liabilities as at March 31, 2013 amounted to $498 thousand (December 31, 2012 - $1,058 thousand), of which approximately $307 thousand relates to research and development activities, approximately $17 thousand relates to professional fees, and approximately $158 thousand relates to accrued payroll liabilities. The decrease in accounts payable and accrued liabilities as at March 31, 2013, compared with December 31, 2012, primarily relates to the payment of invoices received for the fourth quarter of 2012 and outstanding as at December 31, 2012 in respect of R&D activities.

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Deferred License Revenue

Pursuant to the execution of a licensing agreement for Forfivo XL™, we received an upfront fee from Edgemont Pharmaceuticals in the first quarter of 2012, which we recognized as deferred license revenue. The deferred license revenue is amortized in income over the period where sales of Forfivo XL™ are expected to be exclusive. As a result of this policy, we have a deferred revenue balance of $847 thousand at March 31, 2013 (December 31, 2012: $923 thousand) that has not been recognized as revenue, with $539 thousand recognized as the non-current portion and $308 thousand recognized in current assets as the current portion, versus $615 thousand and $308 thousand respectively as at December 31, 2012.

Shareholders’ Equity

As at March 31, 2013 we had accumulated a deficit of $14,949 thousand compared with an accumulated deficit of $14,463 thousand as at December 31, 2012. Total assets amounted to $3,214 thousand and shareholders’ equity totaled $1,869 thousand as at March 31, 2013, compared with total assets and shareholders’ equity of $4,159 thousand and $2,178 thousand respectively, as at December 31, 2012.

Capital Stock

As at March 31, 2012 capital stock amounted to $503 compared to $499 at December 31, 2012. The increase reflects the issuance of 362,500 shares and 50,000 shares related to the exercise of warrants and stock options, respectively, with all shares issued at par value of $0.00001. Capital stock is disclosed at its par value with the excess of proceeds shown in Additional Paid-in-Capital.

Additional Paid-in-Capital

Additional paid-in capital totaled $16,554 thousand at March 31, 2013, compared with $16,342 thousand at December 31, 2012. The increase relates in part to $18 thousand for stock based compensation, of which $6 thousand is attributable to the amortization of stock options granted to consultants, and $12 thousand is attributable to the amortization of stock options granted to employees and directors. Additional paid-in capital increased further by $171 thousand for warrants exercised, and by $23 thousand for options exercised.

Key items from the Statement of Cash Flows

Statement of cash flows

Net cash generated by operating activities was $10 thousand in the three months ended March 31, 2013, compared with $423 thousand for the three months ended March 31, 2012. In the first quarter of 2013, net cash generated by operating activities consisted of an operating loss of $448 thousand net of non-cash related expenses of approximately $38 thousand, and an increase in non-cash operating elements of working capital of $458 thousand.

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Operating activities will continue to consume our available funds until we are able to generate increased revenues.

The net cash provided by financing activities was $195 thousand in the first three months of 2013, compared with $233 thousand provided in the same period of the previous year. The net cash provided in the first quarter of 2013 resulted from the exercise of warrants and options, whereas the cash provided in the first quarter of 2012 resulted entirely from the exercise of warrants.

Net cash used in investing activities amounted to $69 thousand in the three months ended March 31, 2013 compared with $189 thousand in the three months ended March 31, 2012. Included within the use of funds in the first quarter of 2013 is an investment of approximately $68 thousand in new equipment for our VersaFilm technology, compared with an investment of approximately $182 thousand in the first quarter of 2012.

The balance of cash and cash equivalents as at March 31, 2013 amounted to $2,168 thousand, compared with $4,059 thousand at March 31, 2012.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Forward-Looking and Cautionary Statements

This report contains certain forward-looking statements that involve risks and uncertainties relating to, among other things, our future financial performance or future events. Forward-looking statements give management’s current expectations, plans, objectives, assumptions or forecasts of future events. All statements other than statements of current or historical fact contained in this Form 10Q, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” and similar expressions. These statements involve known and unknown risks, estimates, assumptions and uncertainties that could cause actual results to differ materially from the results set forth in this Annual Report. You should not place undue reliance on these forward-looking statements. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors such as:

continued development of our technology;
lack of product revenues
successful completion of clinical trials and obtaining regulatory approval to market
ability to protect our intellectual property
dependence on collaborative partners
ability to generate positive cash flow
ability to raise additional capital if and when necessary
dependence on key personnel;
competitive factors;
the operation of our business; and
general economic conditions.

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These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward looking statements. These forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 3. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to cause the material information required to be disclosed by us in the reports that we file or submit under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation.

PART II

Item 1. Legal Proceedings

This Item is not applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This Item is not applicable.

Item 3. Defaults Upon Senior Securities

This Item is not applicable.

Item 4. (Reserved)

Item 5. Other Information

This Item is not applicable.

Item 6. Exhibits

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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