Full Analyst Report: IntelGenx Tech. Rating: Buy. IntelGenx Looking Towards A Pivotal Year Ahead

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IntelGenx: Looking Towards A Pivotal Year Ahead Full Analyst Report

IntelGenx: Looking Towards A Pivotal Year Ahead Full Analyst Report

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  • 1. The Disclosure section may be found on page 3 of this report.BiopharmaceuticalsRaghuram Selvaraju, Ph.D.(646) 502-2464rselvaraju@aegiscap.comYi Chen, Ph.D.(646) 502-2463ychen@aegiscap.comCompany Update / Estimates ChangeMay 20, 2013Key MetricsIGXT - OTC $0.62Pricing Date May 17 2013Price Target $3.0052-Week Range $0.75 - $0.45Shares Outstanding (mm) 50.3Market Capitalization ($mm) $31.23-Mo Average Daily Volume 158,584Institutional Ownership 0%Debt/Total Capital NMROE NMBook Value/Share $0.04Price/Book 15.5xDividend Yield NMLTM EBITDA Margin NMEPS ($) FY: DecemberPrior Curr. Prior Curr.2011A 2012E 2012E 2013E 2013E1Q-Mar (0.01) -- (0.01) 0.00E (0.01)A2Q-Jun (0.01) -- (0.01) 0.00E (0.01)E3Q-Sep (0.02) -- (0.01) 0.00E (0.01)E4Q-Dec (0.01) -- (0.01) 0.01E (0.01)EFY (0.05) -- (0.04) 0.01E (0.04)EP/E NM NM NMRevenue ($M)Prior Curr. Prior Curr.2011A 2012E 2012E 2013E 2013E1Q-Mar 0.1 -- 0.3A 0.8E 0.2E2Q-Jun 0.1 -- 0.0A 0.9E 0.2E3Q-Sep 0.0 0.2E 0.0E 1.1E 0.5E4Q-Dec 0.3 0.5E 0.9E 1.3E 0.6EFY 0.4 1.0E 1.2E 4.0E 1.4ECompany Description:IntelGenx (http://www.intelgenx.com/) is an emerging firm developingnovel formulations of existing drugs.IntelGenx Technologies Corp.Rating: BuyIntelGenx: Looking Towards A Pivotal Year AheadInvestment Highlights:■Forfivo™ Traction Expected To Accelerate. We note that Forfivo™ hasnow been available in the U.S. for roughly six months, and that IntelGenxspartner Edgemont Pharmaceuticals appears to have dealt with most of theinitial snags that impacted the launch of the drug. Accordingly, therefore,we anticipate meaningful acceleration in Forfivo™ prescription volumes inthe coming months. While we do not expect the drug to become a massiveseller, we note that even a relatively modest revenue base would likely havesubstantial impact on IntelGenxs bottom line, and should be sufficient todrive the company towards profitability. We note that IntelGenx continues toexhibit a cost-effective operational approach, burning roughly $2mm or lessper year. We reiterate our Buy rating and 18-month price target of $3.00 pershare on IGXT.■Rizatriptan 505(b)(2) Application Filed. In March 2013, IntelGenxreported that it had filed for approval of an oral film-based proprietaryformulation of rizatriptan, a well-known anti-migraine drug belongingto the triptan class. Rizatriptan, which was originally developed andcommercialized by Merck & Co. (MRK/NYSE, Not Rated) under the tradename Maxalt, had sales of $638mm in 2012. The patent protection on Maxalthas now expired. We believe that, even in the face of generic competition,it should be possible for IntelGenxs oral film formulation to eke out a solidniche in the migraine market, particularly as the companys delivery approachprovides substantial advantages from an absorbability perspective.■Management Transition Announced. IntelGenx recently appointed Dr.Rajiv Khosla, a widely-respected industry veteran who previously spentseveral years at Biovail Corporation - now Valeant PharmaceuticalsInternational (VRX/NYSE, Buy) - as Chief Scientific Officer and ChiefOperating Officer. Dr. Khosla is also slated to assume the post of CEOeffective January 2014. Horst Zerbe, the companys founder and current CEO,is expected to stay on as Chairman of the Board of Directors and is slated tocontinue to provide expertise on formulation, drug manufacturing and R&D.From our perspective, the appointment of Dr. Khosla is a solid step forwardfor IntelGenx and should enable the firm to operate more aggressively froman out-licensing and partnership standpoint.■Additional Catalysts Expected Near-Term. We believe that 2013 is likelyto be a watershed year for IntelGenx because this is the first time thatthe company is in position to reap rewards from a marketed product -Forfivo - which is in full ramp mode, while simultaneously filing otherdrug candidates for approval with the FDA. In our view, even one or tworegulatory submissions should catch the eye of discerning investors, themajority of whom we continue to believe are unaware of the potential inherentin IntelGenxs diversified product candidate portfolio and capital-efficientbusiness model.
  • 2. 2 AEGIS CAPITAL CORP.Table 1: IntelGenx Technologies Corp. (IGXT.OB) – Historical Income Statements, Financial ProjectionsFY end December 31$ in thousands, except per share data2012A 1QA 2QE 3QE 4QE 2013E 1QE 2QE 3QE 4QE 2014ERevenueProduct revenue 500 80 120 350 500 1,050 850 1,400 1,900 2,200 6,350Service revenue 420 77 100 100 100 377 200 200 200 200 800Research and other 288 - - - - - 50 50 50 50 200Total revenue 1,208 157 220 450 600 1,427 1,100 1,650 2,150 2,450 7,350ExpensesCost of product and service revenue - - - - - - - - - - -Research & development 1,723 167 250 300 350 1,067 400 500 550 600 2,050Selling and marketing - - - - - - - - - - -General and administrative 1,645 476 500 550 600 2,126 600 600 600 600 2,400Total expenses 3,368 643 750 850 950 3,193 1,000 1,100 1,150 1,200 4,450Gain (loss) from operations (2,160) (486) (530) (400) (350) (1,766) 100 550 1,000 1,250 2,900Other income/expenseInterest income/expense (3) - - - - - - - - - -Depreciation (46) - - - - - - - - - -Other income/expense (41) - - - - - - - - - -Total investment income and other (90) - - - - - - - - - -Earnings (Loss) before provision for income taxes (2,250) (486) (530) (400) (350) (1,766) 100 550 1,000 1,250 2,900Foreign currency translation adjustment 100 (36) (36) (36) (36) (144) (40) (40) (40) (40) (160)Net Income (Loss) (2,150) (522) (566) (436) (386) (1,910) 60 510 960 1,210 2,740Net loss per share (basic) (0.04) (0.01) (0.01) (0.01) (0.01) (0.04) 0.00 0.01 0.01 0.02 0.04Net loss per share (diluted) (0.04) (0.01) (0.01) (0.01) (0.01) (0.04) 0.00 0.01 0.01 0.02 0.04Weighted average number of shares outstanding (basic) 49,638 50,236 51,323 53,873 56,423 52,964 60,473 64,523 64,573 64,623 63,548Weighted average number of shares outstanding (diluted) 49,638 50,236 51,323 53,873 56,423 52,964 60,473 64,523 64,573 64,623 63,5482014E2013ESource: Company Reports and Aegis Capital Corp. estimatesIntelGenx Technologies Corp. May 20, 2013
  • 3. 3 AEGIS CAPITAL CORP.Required DisclosuresPrice TargetOur 18-month price target for IGXT is $3.00 per share.Valuation MethodologyWe utilize a risk-adjusted Net Present Value (rNPV) analysis to determine our price target objective. Using a discounted cash flowanalysis, we derive an rNPV-based total firm value of $210 million, which translates into a price per share of $3.00, assuming 72 millionfully-diluted shares outstanding and roughly $20 million in cash as of mid-2014.Risk FactorsIssues that could prevent the achievement of our price objective include, but are not limited to, clinical, regulatory, competitive,reimbursement and financial risks. Drugs in clinical development may not advance due to inadequate safety, efficacy, or tolerability.Regulatory agencies may decline to approve regulatory submissions in a timely manner, or may not approve a drug candidate at all. Thefirm may require substantial funding to advance the clinical progress of its candidates, which could be dilutive to current shareholders.We expect competition for the companys drugs from several public and private companies developing pharmaceuticals. Sales of thefirms drugs could depend upon reimbursement from private, as well as public, reimbursement agencies.For important disclosures go to www.aegiscap.com.Research analyst compensation is dependent, in part, upon investment banking revenues received by Aegis Capital Corp.Aegis Capital Corp. intends to seek or expects to receive compensation for investment banking services from the subject company withinthe next three months.Investment BankingServices/Past 12 Mos.Rating Percent PercentBUY [BUY] 83.33 23.33HOLD [HOLD] 16.67 16.67SELL [SELL] 0.00 0.00Meaning of RatingsA) A Buy rating is assigned when we do not believe the stock price adequately reflects a companys prospects over 12-18 months.B) A Hold rating is assigned when we believe the stock price adequately reflects a companys prospects over 12-18 months.C) A Sell rating is assigned when we believe the stock price more than adequately reflects a companys prospects over 12-18 months.Other DisclosuresThe information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be allinclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Aegis CapitalCorp., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein,and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accountsof other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only andare subject to change without notice. Aegis Capital is under no obligation to provide updates to the opinions or information providedherein. Additional information is available upon request.© Copyright 2012 by Aegis CapitalAegis Capital Corp.(212) 813-1010810 Seventh Avenue, 18th FloorNew York, New York 10019IntelGenx Technologies Corp. May 20, 2013