Additional risks and uncertainties relating to the Companyus and our business can be found in the “Risk Factors” section in Item 3.D below, as well as in our reports, public disclosure documents and other filings with the securities commissions and other regulatory bodies in Canada and the U.S., which are available on www.sedar.com and www.sec.gov. The forward-looking statements reflect our current views with respect to future events, and are madebased on what we believe are reasonable assumptions as of the date hereof, and weof this document. We disclaim any intention and have no obligation or responsibility, except as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Nothing contained in this document should be construed to imply that the results discussed herein will necessarily continue or that any conclusion reached herein will necessarily be indicative of actual operating results of the Company.
In this annual report, unless the context otherwise requires, the terms “we”, “us”, “our”, “Intellipharmaceutics” and the “Company” refer to Intellipharmaceutics International Inc. and its subsidiaries. Any reference in this annual report to our “products” includes a reference to our product candidates and future products we may develop. In this annual report, we refer to information regarding potential markets for our products, product candidates and other industry data. We believe that all such information has been obtained from reliable sources that are customarily relied upon by companies in our industry. However, we have not independently verified any such information.
Intellipharmaceutics™, Hypermatrix™, Drug Delivery Engine™, IntelliFoam™, IntelliGITransporter™, IntelliMatrix™, IntelliOsmotics™, IntelliPaste™, IntelliPellets™, IntelliShuttle™, Rexista™, nPODDDS™ and Rexista™Regabatin™ are our trademarks. These trademarks are important to our business. Although we may have omitted the “TM” trademark designation for such trademarks in this annual report, all rights to such trademarks are nevertheless reserved. Unless otherwise noted, other trademarks used in this annual report are the property of their respective holders.
PART II.
| Identity of Directors, Senior Management and Advisers |
| A. | Directors and senior management |
Not applicable.
-2-
| B. | Advisors |
Not applicable.
| C. | Auditors |
Not applicable.
| A. | Offer statistics |
Not applicable.
| B. | Method and expected timetable |
Not applicable.
A. | Selected Financial Data |
The following selected financial data of Intellipharmaceutics has been derived from the audited consolidated financial statements of the Company as at and for the years ended November 30, 2013, 2012, 2011 and 2010, and the eleven month period ended November 30, 2009, and of our predecessor company for accounting purposes, Intellipharmaceutics Ltd. (“IPC Ltd.”) which had a December 31 fiscal year end, for the years ended December 31, 2008, and 2007.2009. As a result of the IPC Arrangement Transaction (as defined and described in Item 4.A below) completed on October 22, 2009, we selected a November 30 year end. The comparative number of shares issued and outstanding, basic and diluted loss per share have been amended to give effect to this arrangement transaction. These statements were prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”). All dollar amounts hereinin this annual report are expressed in United States dollars (“U.S. dollars”), unless otherwise indicated.
Periods ended (in thousands of U.S. dollars, except for per share data) | ||||||||||||||||||||
As at and for the year ended November 30, 2011 | As at and for the year ended November 30, 2010 | As at and for the eleven month period ended November 30, 2009 | As at and for the year ended December 31, 2008 | As at and for the year ended December 31, 2007 | ||||||||||||||||
| Revenue | 502 | 1,459 | 630 | 1,278 | 2,297 | |||||||||||||||
| Loss for the period | (4,880 | ) | (5,761 | ) | (1,839 | ) | (3,765 | ) | (1,291 | ) | ||||||||||
| Total assets | 6,247 | 3,268 | 11,081 | 3,026 | 6,878 | |||||||||||||||
| Total liabilities | 9,340 | 3,175 | 6,449 | 3,609 | 4,557 | |||||||||||||||
| Net assets | (3,093 | ) | 93 | 4,632 | (583 | ) | 2,322 | |||||||||||||
| Capital stock | 147 | 17 | 17 | 17 | 17 | |||||||||||||||
| Loss per share - basic and diluted | (0.53 | ) | (0.53 | ) | (0.19 | ) | (0.40 | ) | (0.14 | ) | ||||||||||
| Dividends | Nil | Nil | Nil | Nil | Nil | |||||||||||||||
| Weighted average common shares | 14,994 | 10,907 | 9,512 | 9,328 | 9,087 | |||||||||||||||
Periods ended (in thousands, except for per share data) | ||||||||||||||||||||
As at and for the year ended November 30, 2013 | As at and for the year ended November 30, 2012 | As at and for the year ended November 30, 2011 | As at and for the year ended November 30, 2010 | As at and for the eleven month period ended November 30, 2009 | ||||||||||||||||
| Revenue | 1,527 | 107 | 502 | 1,459 | 630 | |||||||||||||||
| Loss for the period | (11,495 | ) | (6,137 | ) | (4,880 | ) | (5,761 | ) | (1,839 | ) | ||||||||||
| Total assets | 4,380 | 2,475 | 6,247 | 3,268 | 11,081 | |||||||||||||||
| Total liabilities | 10,335 | 4,243 | 9,340 | 3,175 | 6,449 | |||||||||||||||
| Net assets | (5,955 | ) | (1,768 | ) | (3,093 | ) | 93 | 4,632 | ||||||||||||
Capital stock (1) | 11,721 | 6,129 | 902 | 17 | 17 | |||||||||||||||
| Loss per share - basic and diluted | (0.58 | ) | (0.36 | ) | (0.33 | ) | (0.53 | ) | (0.19 | ) | ||||||||||
| Dividends | Nil | Nil | Nil | Nil | Nil | |||||||||||||||
| Weighted average common shares | 19,671 | 17,259 | 14,994 | 10,907 | 9,512 | |||||||||||||||
-3-
Notes:
| (1) | As restated for the year ended November 30, 2012 and 2011 and discussed in Items 5.A and 10.A |
The following table sets forth the average exchange rate for one Canadian dollar expressed in terms of one U.S. dollar for the fiscal years 2007 through 2008, for the eleven month period ended November 30, 2009 and for fiscal years 2010, 2011, 2012 and 2011.2013. The average rate is calculated using the average of the exchange rates on the last day of each month during the period.
| AVERAGE | ||||
| 2007 | 0.9304 | |||
| 2008 | 0.9381 | |||
| 2009 (11 months) | 0.8696 | |||
| 2010 | 0.9673 | |||
| 2011 | 1.0123 | |||
| AVERAGE | |||
| 2009 (11 months) | 0.8696 | ||
| 2010 | 0.9673 | ||
| 2011 | 1.0123 | ||
| 2012 | 0.9977 | ||
| 2013 | 1.0241 |
| The following table sets forth the high and low exchange rates for each month during the previous six months. | ||||||||
| LOW | HIGH | |||||||
| November 2011 | 0.9536 | 0.9876 | ||||||
| December 2011 | 0.9610 | 0.9896 | ||||||
| January 2012 | 0.9735 | 1.0014 | ||||||
| February 2012 | 0.9984 | 1.0136 | ||||||
| March 2012 | 0.9985 | 1.0153 | ||||||
| April 2012 | 0.9961 | 1.0197 | ||||||
The following table sets forth the high and low exchange rates for each month during the previous six months.
| LOW | HIGH | |||
| August 2013 | 0.9476 | 0.9712 | ||
| September 2013 | 0.9494 | 0.9768 | ||
| October 2013 | 0.9564 | 0.9724 | ||
| November 2013 | 0.9435 | 0.9602 | ||
| December 2013 | 0.9348 | 0.9454 | ||
| January 2014 | 0.8952 | 0.9422 | ||
| February 2014 (through February 14, 2014) | 0.9011 | 0.9110 |
The exchange rates are based upon the noon buying rate as quoted by The Bank of Canada. At May 10, 2012,February 14, 2014, the exchange rate for one Canadian dollar expressed in terms of one U.S. dollar, as quoted by The Bank of Canada at 4 p.m. Eastern Time, equaled $0.9983.$0.9105.
B. | Capitalization and Indebtedness |
Not Applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not Applicable.
D. | Risk Factors |
Prospects for companies in the pharmaceutical industry generally may be regarded as uncertain given the research and development nature of the industry and uncertainty regarding the prospects of successfully commercializing product candidates and, accordingly, investments in companies such as ours should be regarded as very speculative. An investor should carefully consider the risks and uncertainties described below, as well as other information contained in this annual report. The list of risks and uncertainties described below is not an exhaustive list. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any one or more of the following risks occur, our business, financial condition and results of operations could be seriously harmed. Further, if we fail to meet the expectations of the public market in any given period, the market price of our common shares could decline. If any of the following risks actually occurs, our business, operating results, or financial condition could be materially adversely affected.
Our activities entail significant risks. In addition to the usual risks associated with a business, the following is a general description of certain significant risk factors which may be applicable to us.
-4-
Risks related to our Company
Our business is capital intensive and requires significant investment to conduct research and development, clinical and regulatory activities necessary to bring our products to market, which capital may not be available in amounts or on terms acceptable to us, if at all.
Our business requires substantial capital investment in order to conduct the research and development, clinical and regulatory activities necessary to bring our products to market and to establish commercial manufacturing, marketing and sales capabilities. As of November 30, 2011,2013, we had a cash balance of $4.8 million. On March 15, 2012, we completed a registered direct common share offering of 1,818,182 shares at a price of $2.75 per share for gross proceeds of approximately $5 million. After placement agent fees and estimated offering expenses, we received net proceeds from the offering of approximately $4.4$0.8 million. As of April 30, 2012,February 18, 2014, our cash balance was $5.6 million.
funds on terms favorable to us or at all, may require us to significantly change or curtail our current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in our not taking advantage of business opportunities, in the termination or delay of clinical trials for one or more of our product candidates, in curtailment of our product development programs designed to identify new product candidates, in the sale or assignment of rights to our technologies, products or product candidates, and/or our inability to file abbreviated new drug applications (“ANDAs”) or new drug applications (“NDAs”) 505(b)(2) at all or in time to competitively market our products or product candidates.
Delays, suspensions and terminations in our preclinical studies and clinical trials could result in increased costs to us and delay our ability to generate product revenues.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in:
| · | demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial; |
| · | reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites; |
| · | manufacturing sufficient quantities of a drug candidate; |
| · | obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site; |
| · | patient enrollment; and |
| · | for controlled substances, obtaining specific permission to conduct a study, and obtaining import and export permits to ship study samples. |
-5-
Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of factors, including:
| · | the number of patients that participate in the trial; |
| · | the length of time required to enroll suitable subjects; |
| · | the duration of patient follow-up; |
| · | the number of clinical sites included in the trial; |
| · | changes in regulatory requirements or regulatory delays or clinical holds requiring suspension or termination of the trials; |
| · | delays, suspensions or termination of clinical trials due to the institutional review board overseeing the study at a particular site; |
| · | failure to conduct clinical trials in accordance with regulatory requirements; |
| · | unforeseen safety issues, including serious adverse events or side effects experienced by participants; and |
| · | inability to manufacture, through third party manufacturers, adequate supplies of the product candidate being tested. |
Based on results at any stage of product development, we may decide to repeat or redesign preclinical studies or clinical trials, conduct entirely new studies or discontinue development of products for one or all indications. In addition, our productsproduct candidates may not demonstrate sufficient safety and efficacy in pending or any future preclinical testing or clinical trials to obtain the requisite regulatory approvals. Even if such approvals are obtained for our products, they may not be accepted in the market as a viable alternative to other products already approved or pending approvals.
If we experience delays, suspensions or terminations in a preclinical study or clinical trial, the commercial prospects for our products will be harmed, and our ability to generate product revenues will be delayed or we may never be able to generate such revenues.
We have a history of operating losses, which may continue in the foreseeable future.
We have incurred net losses from inception through November 30, 2011,2013 and had an accumulated deficit of $23.9$41.6 million as of such date and have incurred additional losses since such date. As we engage in the development of products in our pipeline, we will continue to incur further losses. There can be no assurance that we will ever be able to achieve or sustain profitability or positive cash flow. Our ultimate success will depend on whether our drug formulationsproduct candidates receive the approval of the United States Food and Drug Administration (“FDA”) or other applicable regulatory agencies and we are able to successfully market approved products. We cannot be certain that we will be able to receive FDA approval for any of our drug formulations,current or future product candidates, or that we will reach the level of sales and revenues necessary to achieve and sustain profitability.
Loss of key scientists and failure to attract qualified personnel could limit our growth and negatively impact our operations.
We are dependent upon the scientific expertise of Dr. Isa Odidi, our Chairman and Chief Executive Officer, and Dr. Amina Odidi, our President and Chief Operating Officer. Although we employ other qualified scientists, Drs. Isa and Amina Odidi are our only employees with the knowledge and experience necessary for us to continue development of controlled-release products. We do not maintain key-person life insurance on any of our officers or employees. Although we have employment agreements with key members of our management team, each of our employees may terminate his or her employment at any time. The success of our business depends, in large part, on our continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel, on our ability to successfully integrate many new employees, and on our ability to develop and maintain important relationships with leading research and medical institutions and key distributors. If we lose the services of our executive officers or other qualified personnel or are unable to attract and retain qualified individuals to fill these roles or develop key relationships, our business, financial condition and results of operations could be materially adversely affected.
-6-
Our intellectual property may not provide meaningful protection for our products and product candidates.
We hold certain U.S., Canadian and foreign patents and have pending applications for additional patents outstanding. We intend to continue to seek patent protection for, or maintain as trade secrets, all of our commercially promising drug delivery platforms and technologies. Our success depends, in part, on our and our collaborative partners’ ability to obtain and maintain patent protection for newproducts and product candidates, maintain trade secret protection and operate without infringing the proprietary rights of third parties. Without patent and other similar protection, other companies could offer substantially identical products without incurring sizeable development costs which could diminish our ability to recover expenses of and realize profits on our developed products. If our pending patent applications are not approved, or if we are unable to obtain patents for additional developed technologies, the future protection for our technologies will remain uncertain. Furthermore, third parties may independently develop similar or alternative technologies, duplicate some or all of our technologies, design around our patented technologies or challenge our issued patents. Such third parties may have filed patent applications, or hold issued patents, relating to products or processes competitive with those we are developing or otherwise restricting our ability to do business in a particular area. If we are unable to obtain patents or otherwise protect our trade secrets or other intellectual property and are unable to operate without infringing on the proprietary rights of others, our business, financial condition and results of operations could be materially adversely affected.
We may be subject to intellectual property claims that could be costly and could disrupt our business.
Third parties may claim we have infringed their patents, trademarks, copyrights or other rights. We may be unsuccessful in defending against such claims, which could result in the inability to protect our intellectual property rights or liability in the form of substantial damages, fines or other penalties.penalties such as injunctions precluding our manufacture, importation or sales of products. The resolution of a claim could also require us to change how we do business or enter into burdensome royalty or license agreements. Insurance coverage may be denied or may not be adequate to cover every claim that third parties could assert against us. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management’s time and disruptions in our business. Any of these claims could also harm our reputation.
We rely on maintaining as trade secrets our competitively sensitive know-how and other information. Intentional or unintentional disclosure of this information could impair our competitive position.
As to many technical aspects of our business, we have concluded that competitively sensitive information is either not patentable or that for competitive reasons it is not commercially advantageous to seek patent protection. In these circumstances, we seek to protect this know-how and other proprietary information by maintaining it in confidence as a trade secret. To maintain the confidentiality of our trade secrets, we generally enter into agreements that contain confidentiality provisions with our employees, consultants, collaborators, contract manufacturers and advisors upon commencement of their relationships with us. These provisions generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. We may not have these arrangements in place in all circumstances, and the confidentiality provisions in our favour may be breached. We may not become aware of, or have adequate remedies in the event of, any such breach. In addition, in some situations, the confidentiality provisions in our favour may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, contract manufacturers or advisors have previous employment or consulting relationships. To the extent that our employees, consultants, collaborators, contract manufacturers or advisors use trade secrets or know-how owned by others in their work for us, disputes may arise as to the ownership of relative inventions. Also, others may independently develop substantially equivalent trade secrets, processes and know-how, and competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business. The disclosure of our trade secrets could impair our competitive position. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information.
-7-
Approvals for our product candidates may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.
The FDA may institute changes to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval for our new generic products. For instance, in July 2012, the Generic Drug Fee User Amendments of 2012 (“GDUFA”) were enacted into law. The GDUFA legislation implemented substantial fees for new ANDAs, Drug Master Files, product and establishment fees and a one-time fee for back-logged ANDAs pending approval as of October 1, 2012. Under GDUFA, generic product companies face significant penalties for failure to pay the new user fees, including rendering an ANDA not “substantially complete” until the fee is paid. It is currently uncertain the effect the new fees will have on our ANDA process and business. However, any failure by us or our suppliers to pay the fees or to comply with the other provisions of GDUFA may adversely impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus may have a material adverse effect on our business, results of operations and financial condition.
We operate in a highly litigious environment.
From time to time, we are subject to legal proceedings. As of the date of this annual report, we are not aware of any material litigation pending or threatened litigation claims against us other than as described under Item 8.A below,us. Litigation to which we are, or may be, subject could relate to, among other things, our patent and other intellectual property rights, or such rights of others, business or licensing arrangements with other persons, product liability or financing activities. Such litigation could include an injunction against the manufacture or sale of one or more of our products or potential products or a significant monetary judgment, including a possible punitive damages award, or a judgment that certain of our patent or other intellectual property rights are invalid or unenforceable or infringe the intellectual property rights of others. If such litigation is commenced, our business, results of operations, financial condition and cash flows could be materially adversely affected.
There has been substantial litigation in the pharmaceutical industry concerning the manufacture, use and sale of new products that are the subject of conflicting patent rights. When we file an ANDA for a bioequivalent version of a drug, we may, in some circumstances, be required to certify to the FDA that any patent which has been listed with the FDA as covering the branded product has expired, the date any such patent will expire, or that any such patent is invalid or will not be infringed by the manufacture, sale or use of the new drug for which the application is submitted. Approval of an ANDA is not effective until each listed patent expires, unless the applicant certifies that the patents at issue are not infringed or are invalid and so notifies the patent holder and the holder of the branded product. A patent holder may challenge a notice of non-infringement or invalidity by suing for patent infringement within 45 days of receiving notice. Such a challenge prevents FDA approval for a period which ends 30 months after the receipt of notice, or sooner if an appropriate court rules that the patent is invalid or not infringed. From time to time, in the ordinary course of business, we face and have faced such challenges and may continue to do so in the future.
Brand-name pharmaceutical manufacturers routinely bring patent infringement litigation against ANDA applicants seeking FDA approval to manufacture and market generic forms of their branded products. We are routinely subject to patent litigation that can delay or prevent our commercialization of products, force us to incur substantial expense to defend, and expose us to substantial liability.
We cannot ensure the availability of raw materials.
Certain raw materials necessary for the development and subsequent commercial manufacture of our product candidates may be proprietary products of other companies. While we attempt to manage the risk associated with such proprietary raw materials, if our efforts fail, or if there is a material shortage, contamination, and/or recall of such materials, the resulting scarcity could adversely affect our ability to develop or manufacture our product candidates. In addition, many third party suppliers are subject to governmental regulation and, accordingly, we are dependent on the regulatory compliance of, as well as on the strength, enforceability and terms of our various contracts with, these third party suppliers.
Further, the FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials are unavailable from a specified supplier, the supplier does not give us access to its technical information for our application or the supplier is not in compliance with FDA or other applicable requirements, FDA approval of the supplier could delay the manufacture of the drug involved. Any inability to obtain raw materials on a timely basis, or any significant price increases which cannot be passed on to customers, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
-8-
Our product candidates may not be successfully developed or commercialized.
Successful development of our productsproduct candidates is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Products that appear promising in research or early phases of development may fail to reach later stages of development or the market for several reasons including:
| · | for ANDA candidates, bioequivalence studies results may not meet regulatory requirements or guidelines for the demonstration of bioequivalence; |
| · | for NDA candidates, a product may not demonstrate acceptable large-scale clinical trial results, even though it demonstrated positive preclinical or initial clinical trial results; |
| · | for NDA candidates, a product may not be effective in treating a specified condition or illness; |
| · | a product may have harmful side effects on humans; |
| · | products may fail to receive the necessary regulatory approvals from the FDA or other regulatory bodies, or there may be delays in receiving such approvals; |
| · | difficulties may be encountered in formulating products, scaling up manufacturing processes or in getting approval for manufacturing; |
| · | manufacturing costs, pricing or reimbursement issues, other competitive therapeutics, or other commercial factors may make the product uneconomical; and |
| · | the proprietary rights of others, and their competing products and technologies, may prevent the product from being developed or |
Further, success in preclinical and early clinical trials does not ensure that large-scale clinical trials will be successful, nor does success in preliminary studies for ANDA candidates ensure that bioequivalence studies will be successful. Results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete bioequivalence studies or clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict.
As a result, there can be no assurance that any of our productsproduct candidates currently in development will ever be successfully commercialized.
We have invested significant time and effort in the development of our lead product, our once daily generic dexmethylphenidate XR. Although it remainshydrochloride extended-release capsules, which has only recently received final FDA approval for the 15 and 30 mg strengths. Our 5, 10, 20 and 40 mg strengths were also tentatively FDA approved, subject to the right of another party or parties to 180 days of generic exclusivity from the date of first launch of such products by such parties. We believe that our most advanced product, it has not yet received regulatory approval, anddevelopment partner, Par Pharmaceutical, Inc. (“Par”), intends to launch these strengths immediately upon the expiry of those exclusivity periods but there can be no assurance as to when or if such regulatorylaunch will occur. There can be no assurance as to when or if final FDA approval will be received.received for the remaining product strengths we have applied for or that any of these strengths tentatively approved will ever be successfully commercialized. We depend significantly on the actions of our development partner Par Pharmaceutical, Inc. (“Par”) in the prosecution, regulatory approval and
commercialization of our generic dexmethylphenidate XR product.hydrochloride extended-release products and on their timely payment to us of the contracted quarterly payments as they come due. Our near term ability to generate significant revenue will depend upon receipt of regulatory approval and successful commercialization of this product in the United States, where the branded Focalin XR® product is in the market. Although we have several other products in our pipeline, they are at earlier stages of development.
-9-
Our significant expenditures on research and development may not lead to successful product introductions.
We conduct research and development primarily to enable us to manufacture and market pharmaceuticals in accordance with FDA regulations. Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. As we continue to develop new products, our research expenses will likely increase. We are required to obtain FDA approval before marketing our drug products and the approval process is costly and time consuming. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of FDA approved new pharmaceuticals.
We may not have the ability to develop or license, or otherwise acquire, and introduce new products on a timely basis.
Product development is inherently risky, especially for new drugs for which safety and efficacy have not been established and the market is not yet proven. Likewise, product licensing involves inherent risks including uncertainties due to matters that may affect the achievement of milestones, as well as the possibility of contractual disagreements with regard to terms such as license scope or termination rights. The development and commercialization process, particularly with regard to new drugs, also requires substantial time, effort and financial resources. The process of obtaining FDA or other regulatory approval to manufacture and market new and generic pharmaceutical products is rigorous, time consuming, costly and largely unpredictable. We, or a partner, may not be successful in obtaining FDA or other required regulatory approval or in commercializing any of the productsproduct candidates that we are developing or licensing.
We may not achieve our projected development goals in the time frames we announce and expect.
We set goals regarding the expected timing of meeting certain corporate objectives, such as the commencement and completion of clinical trials, anticipated regulatory approval and product launch dates. From time to time, we may make certain public statements regarding these goals. The actual timing of these events can vary dramatically due to, among other things, insufficient funding, delays or failures in our clinical trials or bioequivalence studies, the uncertainties inherent in the regulatory approval process, such as requests for additional information, delays in achieving manufacturing or marketing arrangements necessary to commercialize our product candidates and failure by our collaborators, marketing and distribution partners, suppliers and other third parties to fulfill contractual obligations.
Our products may not achieve expected levels of market acceptance, thereby limiting our potential to generate revenue.
Even if we are able to obtain regulatory approvals for our proposed products,product candidates, the success of thoseany of our products will be dependent upon market acceptance. Levels of market acceptance for any products to be marketed by us could be affected by several factors, including:
| · | the availability of alternative products from competitors; |
| · | the prices of our products relative to those of our competitors; |
| · | the timing of our market entry; |
| · | the ability to market our products effectively at the retail level; and |
| · | the acceptance of our products by government and private formularies. |
Some of these factors are not within our control, and our proposed products may not achieve levels of market acceptance anticipated by us. Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others which can call into question the utilization, safety and efficacy of our products and any product candidates we are currently developing or may develop in the future. These studies could also impact a future product after it has been marketed. In some cases, studies have resulted, and may in the future result, in the discontinuance of product marketing or requirement of other risk management programs such as the need for a patient registry. The failure of our products and any of our product candidates, once approved, to achieve market acceptance would limit our ability to generate revenue and would adversely affect our results of operations.
-10-
The risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization of our own branded products, which could have a material adverse effect on our results of operations, liquidity, financial condition, and growth prospects.
There are a number of risks and uncertainties associated with clinical trials, which may be exacerbated by our relatively limited experience in conducting and supervising clinical trials and preparing NDAs. The results of initial clinical trials may not be indicative of results that would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced stages of disease and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects experienced by the patients may cause delay of approval of our product candidates or a limited application of an approved product. Moreover, our clinical trials may not demonstrate sufficient safety and efficacy to obtain FDA approval.
Failure can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired safety or efficacy despite having progressed successfully through earlier clinical testing. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in earlier clinical trials. In the future, the completion of clinical trials for our product candidates may be delayed or halted for many reasons, including those relating to the following:
| · | delays in patient |
| · | regulators or institutional review boards may not allow us to commence or continue a clinical trial; |
| · | our inability, or the inability of our partners, to manufacture or obtain from third parties materials sufficient to complete our clinical trials; |
| · | delays or failures in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial sites; |
| · | risks associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product candidate is effective; |
| · | difficulty in maintaining contact with patients after treatment commences, resulting in incomplete data; |
| · | poor effectiveness of product candidates during clinical trials; |
| · | safety issues, including adverse events associated with product candidates; |
| · | the failure of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons; |
| · | governmental or regulatory delays or changes in regulatory requirements, policy and guidelines; and |
| · | varying interpretation of data by the FDA or other applicable foreign regulatory agencies. |
In addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development by other companies which may delay the enrolment in or initiation of our clinical trials. Many of these companies have significantly more resources than we do.
The FDA or other foreign regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates would prevent or delay the commercialization of our product candidates. There can be no assurance our expenses related to clinical trials will lead to the development of brand-name drugs which will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our results of operations, liquidity, financial condition, and our growth prospects.
-11-
We rely on third parties to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product candidates.
We design the clinical trials for our product candidates, but rely on contract research organizations and other third parties to assist us in managing, monitoring and otherwise carrying out these trials, including with respect to site selection, contract negotiation and data management. We do not control these third parties and, as a result, they may not treat our clinical studies as their highest priority, or in the manner in which we would prefer, which could result in delays. Although we rely on third parties to conduct our clinical trials, we are responsible for confirming that each of our clinical trials is conducted in accordance with our general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. The FDA enforces good clinical practices through periodic inspections of trial sponsors, principal investigators and trial sites. If we, our contract research organizations or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. There can be no assurance that, upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices. In addition, our clinical trials must be conducted with product manufactured under the FDA’s current Good Manufacturing Practices (“cGMP”) regulations. Our failure, or the failure of our contract manufacturers if(if any are involved in the process,process) to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If third parties do not successfully carry out their duties under their agreements with us; if the quality or accuracy of the data they obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements; or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, such clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates, which could have a material adverse effect on our results of operations, financial condition and growth prospects.
Competition in our industry is intense, and developments by other companies could render our products and product candidates obsolete.
Many of our competitors, including medical technology, pharmaceutical or biotechnology and other companies, universities, government agencies, or research organizations, have substantially greater financial and technical resources and production and marketing capabilities than we have. They also may have greater experience in conducting bioequivalence studies, preclinical testing and clinical trials of pharmaceutical products, obtaining FDA and other regulatory approvals, and ultimately commercializing any approved products. Therefore, our competitors may succeed in developing and commercializing technologies and products that are more effective than the drug delivery technologies we have developed or we are developing or that will cause our technologies or products to become obsolete or non-competitive, and in obtaining FDA approval for products faster than we could. These developments could render our products obsolete and uncompetitive, which would have a material adverse effect on our business, financial condition and results of operations. Even if we commence further commercial sales of our products, we will be
competing against the greater manufacturing efficiency and marketing capabilities of our competitors, areas in which we have limited or no experience.
We rely on collaborative arrangements with third parties that provide manufacturing and/or marketing support for some or all of our products and product candidates. Even if we find a potential partner, we may not be able to negotiate an arrangement on favorablefavourable terms or achieve results that we consider satisfactory. In addition, such arrangements can be terminated under certain conditions and do not assure a product’s success. We also face intense competition for collaboration arrangements with other pharmaceutical and biotechnology companies.
-12-
Although we believe that our ownership of patents for some of our drug delivery products will limit direct competition with these products, we must also compete with established existing products and other promising technologies and other products and delivery alternatives that may be more effective than our products and proposed products. In addition, we may not be able to compete effectively with other commercially available products or drug delivery technologies.
We have not receivedrequire regulatory approvalapprovals for any productproducts that usesuse our drug delivery technologies.
Our drug delivery technologies can be quite complex, with many different components. The development required to take a technology from its earliest stages to its incorporation in a product that is sold commercially can take many years and cost a substantial amount of money. Significant technical challenges are common as additional products incorporating our technologies progress through development, particularly in the first product candidate incorporating a new technology.development.
If our efforts do not repeatedly lead to successful development of product candidates, we may not be able to grow our pipeline or to enter into agreements with marketing and distribution partners or collaborators that are willing to distribute or develop our product candidates. Delays or unanticipated increases in costs of development at any stage, or failure to solve a technical challenge, could adversely affect our operating results.
If contract manufacturers fail to devote sufficient time and resources to our concerns, or if their performance is substandard, the commercialization of our products could be delayed or prevented, and this may result in higher costs or deprive us of potential product revenues.
We rely on contract manufacturers for certain components and ingredients of our clinical trial materials, such as active productpharmaceutical ingredients (“APIs”), and we may rely on such manufacturers for commercial sales purposes as well. Our reliance on contract manufacturers in these respects will expose us to several risks which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product revenues, including:
| · | Difficulties in achieving volume production, quality control and quality assurance, or technology transfer, as well as with shortages of qualified personnel; |
| · | The failure to establish and follow cGMP and to document adherence to such practices; |
| · | The need to |
| · | Failure to perform as agreed or to remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully; |
| · | The potential for an untimely termination or non-renewal of contracts; and |
| · | The potential for us to be in breach of our collaboration and marketing and distribution arrangements with third parties for the failure of our contract manufacturers to perform their obligations to us. |
In addition, drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign agencies to ensure strict compliance with cGMP and other government regulations. While we may audit the performance of third-party contractors, we will not have complete control over their compliance with these regulations and standards. Failure by either our third-party manufacturers or by us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of applicable regulatory authorities to grant review of submissions or market approval of drugs, delays, suspension or withdrawal of approvals, product seizures or recalls, operating restrictions, facility closures and criminal prosecutions, any of which could harm our business.
-13-
We are subject to currency rate fluctuations that may impact our reported financial results.
A large majority of our expenses are payable in Canadian dollars and our financial results are reported in U.S. dollars. There may be instances where we have net foreign currency exposure. Any fluctuations in exchange rates will impact our reported financial results.
We have limited sales, marketing and distribution experience.
We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that, if required, we would be able to establish sales, marketing, and distribution capabilities or make arrangements with our collaborators, licensees, or others to perform such activities or that such efforts would be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties, our business, financial condition and results of operations will be materially adversely affected.
Our significant shareholders will have the ability to exercise significant controlinfluence over certain corporate actions.
Our principal shareholders, Drs. Amina and Isa Odidi, our President and Chief Operating Officer and our Chairman and Chief Executive Officer, respectively, and Odidi Holdings Inc., a privately-held company controlled by Drs. Amina and Isa Odidi, beneficially owned in the aggregate approximately 39.8%26.3% of our issued and outstanding common shares as of the date of this annual report (including(and collectively beneficially owned in the aggregate approximately 34.6% of our common shares, including common shares issuable upon the exercise of outstanding options and the conversion of the convertible debenture held by Odidi Holdings Inc. and Drs. Amina and Isa Odidi that are exercisable or convertible within 60 days of the date hereof). As a result, the principal shareholders will have the ability to exercise significant controlinfluence over all matters submitted to our shareholders for approval that are notwhether subject to approval by a majority of holders of our common shares or subject to a class vote or special resolution requiring the approval of 66⅔% of the votes cast by holders of our common shares, in person or by proxy. Further, our principal shareholders will have the ability to exercise significant control over matters submitted to our shareholders requiring approval of the majority of holders of our common shares including the election and removal of directors.
Our effective tax rate may vary.
Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, future levels of research and development spending, the availability of tax credit programs for the reimbursement of all or a significant proportion of research and development spending, and changes in overall levels of pre-tax earnings. At present, we qualify in Canada for certain research tax credits for qualified scientific research and experimental development pertaining to our drug delivery technologies and drug products in research stages. If Canadian tax laws relating to research tax credits were substantially negatively altered or eliminated, or if a substantial portion of our claims for tax credits were denied by the relevant taxing authorities, pursuant to an audit or otherwise, it would have a material adverse effect upon our financial results.
Risks related to our Industry
Generic drug manufacturers will increase competition for certain products and may reduce our expected royalties.
-14-
Market acceptance of our products will be limited if users of our products are unable to obtain adequate reimbursement from third-party payers.
Government health administration authorities, private health insurers and other organizations generally provide reimbursement for products like ours, and our commercial success will depend in part on whether appropriate reimbursement levels for the cost of our products and related treatments are obtained from government authorities, private health insurers and other organizations, such as health maintenance organizations and managed care organizations. Even if we succeed in bringing any of our products to market, third-party payers may not provide reimbursement in whole or in part for their use.
Significant uncertainty exists as to the reimbursement status of newly approved health care products. Some of our product candidates, such as our once-daily Rexista™ abuse-deterrent oxycodone product, are intended to replace or alter existing therapies or procedures. These third-party payers may conclude that our products are less safe, less effective or less economical than those existing therapies or procedures. Therefore, third-party payers may not approve our products for reimbursement. We may be required to make substantial pricing concessions in order to gain access to the formularies of large managed-care organizations. If third party payers do not approve our products for reimbursement or fail to reimburse them adequately, sales will suffer as some physicians or their patients may opt for a competing product that is approved for reimbursement or is adequately reimbursed. Even if third-party payers make reimbursement available, these payers’ reimbursement policies may adversely affect our ability and our potential marketing and distribution partners’ ability to sell our products on a profitable basis.
We are subject to significant costs and uncertainties related to compliance with the extensive regulations that govern the manufacturing, labeling, distribution, and promotion of pharmaceutical products as well as environmental, safety and health regulations.
Governmental authorities in the United States and Canada regulate the research and development, testing and safety of pharmaceutical products. The regulations applicable to our existing and future products may change. Regulations require extensive clinical trials and other testing and government review and final approval before we can market our products. The cost of complying with government regulation can be substantial and may exceed our available resources, causing delay or cancellation of our product introductions.
Some abbreviated application procedures for controlled-release drugs and other products, including those related to our ANDA filings, or to the ANDA filings of unrelated third parties in respect of drugs similar to or chemically related to those of our ANDA filings, are or may become the subject of petitions filed by brand-name drug manufacturers or other ANDA filers seeking changes from the FDA in the interpretation of the statutory approval requirements for particular drugs as part of their strategy to thwart or advance generic competition. We cannot predict whether the FDA will make any changes to its interpretation of the requirements applicable to our ANDA applications as a result of these petitions, or whether unforeseen delays will occur in our ANDA filings while the FDA considers such petitions or changes or otherwise, or the effect that any changes may have on us. Any such changes in FDA interpretation of the statutes or regulations, or any legislated changes in the statutes or regulations, may make it more difficult for us to file ANDAs or obtain further approval of our ANDAs and generate revenues and thus may materially harm our business and financial results.
Any failure or delay in obtaining regulatory approvals could make it so that we are unable to market any products we develop and therefore adversely affect our business, results of operations, financial condition and cash flows. Even if product candidates are approved in the United States or Canada, regulatory authorities in other countries must approve a product prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer than in the United States or Canada, which could cause the introduction of our products in other countries to be cancelled or materially delayed.
The manufacturing, distribution, processing, formulation, packaging, labeling and advertising of our products are subject to extensive regulation by federal agencies, including in the United States, the FDA, Drug Enforcement Administration, Federal Trade Commission, Consumer Product Safety Commission and Environmental Protection Agency, among others. We are also subject to state and local laws, regulations and agencies. Compliance with these regulations requires substantial expenditures of time, money and effort in such areas as production and quality control to ensure full technical compliance. Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of NDAs or ANDAs, enforcement actions, injunctions and civil or criminal prosecution.
-15-
Environmental laws have changed in recent years and we may become subject to stricter environmental standards in the future and face larger capital expenditures in order to comply with environmental laws. We are subject to extensive federal, state, provincial and local environmental laws and regulations which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in, or result from, our operations. We are also subject periodically to environmental compliance reviews by environmental, safety, and health regulatory agencies and to potential liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities. We cannot accurately predict the outcome or timing of future expenditures that we may be required to make in order to comply with the federal, state, local and provincial environmental, safety, and health laws and regulations that are applicable to our operations and facilities.
We are subject to product liability costs for which we may not have or be able to obtain adequate insurance coverage.
The testing and marketing of pharmaceutical products entails an inherent risk of product liability. Liability exposures for pharmaceutical products can be extremely large and pose a material risk. In some instances, we may be or may become contractually obligated to indemnify third parties for such liability. Our business may be materially and adversely affected by a successful product liability claim or claims in excess of any insurance coverage that we may have. Further, even if claims are not successful, the costs of defending such claims and potential adverse publicity could be harmful to our business.
While we currently have, and in some cases are contractually obligated to maintain, insurance for our business, property and our products as they are administered in bioavailability/bioequivalence studies, first and third party insurance is increasingly costly and narrow in scope. Therefore, we may be unable to meet such contractual obligations or we may be required to assume more risk in the future. If we are subject to third party claims or suffer a loss or damage in excess of our insurance coverage, we may be required to bear that risk in excess of our insurance limits. Furthermore, any first or third party claims made on our insurance policy may impact our ability to obtain or maintain insurance coverage at reasonable costs or at all in the future.
Our products involve the use of hazardous materials and waste, and as a result we are exposed to potential liability claims and to costs associated with complying with laws regulating hazardous waste.
Our research and development activities involve the use of hazardous materials, including chemicals, and are subject to Canadian federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. It is possible that accidental injury or contamination from these materials may occur. In the event of an accident, we could be held liable for any damages, which could exceed our available financial resources. Further, we may not be able to maintain insurance to cover these costs on acceptable terms, or at all. In addition, we may be required to incur significant costs to comply with environmental laws and regulations in the future.
Our operations may be adversely affected by risks associated with international business.
We may be subject to certain risks that are inherent in an international business, including:
| · | varying regulatory restrictions on sales of our products to certain markets and unexpected changes in regulatory requirements; |
| · | tariffs, customs, duties, and other trade barriers; |
| · | difficulties in managing foreign operations and foreign distribution partners; |
| · | longer payment cycles and problems in collecting accounts receivable; |
| · | political risks; |
-16-
| · | foreign exchange controls that may restrict or prohibit repatriation of funds; |
| · | export and import restrictions or prohibitions, and delays from customs brokers or government agencies; |
| · | seasonal reductions in business activity in certain parts of the world; and |
| · | potentially adverse tax consequences. |
Depending on the countries involved, any or all of the foregoing factors could materially harm our business, financial condition and results of operations.
Risks related to our Common Sharescommon shares
Our share price has been highly volatile and our shares could suffer a further decline in value.
The trading price of our common shares has been highly volatile and could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:
| · | sales of our common shares, including any sales made in connection with future financings; |
| · | announcements regarding new or existing corporate relationships or arrangements; |
| · | announcements by us of significant acquisitions, joint ventures, or capital commitments; |
| · | actual or anticipated period-to-period fluctuations in financial results; |
| · | clinical and regulatory development regarding our product candidates; |
| · | litigation or threat of litigation; |
| · | failure to achieve, or changes in, financial estimates by securities analysts; |
| · | comments or opinions by securities analysts or members of the medical community; |
| · | announcements regarding new or existing products or services or technological innovations by us or our competitors; |
| · | conditions or trends in the pharmaceutical and biotechnology industries; |
| · | additions or departures of key personnel or directors; |
| · | economic and other external factors or disasters or crises; |
| · | limited daily trading volume; and |
| · | developments regarding our patents or other intellectual property or that of our competitors. |
In addition, the stock market in general and the market for drug development companies in particular have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been significant volatility in the market prices of
securities of life science companies. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities, and the diversion of management’s attention and resources.
A large number of our common shares could be sold in the market in the near future, which could depress our stock price.
As of the date of this annual report, we had approximately 17.822.8 million common shares outstanding. In addition, a substantial portion of our shares are currently freely trading without restriction under the Securities Act of 1933, as amended (“U.S. Securities Act”), having been registered for resale or held by their holders for over one year and are eligible for sale under Rule 144. In addition, we may sell up to 5,305,484 of our common shares for up to an aggregate of $16.8 million (or such lesser amount as may be permitted under applicable securities laws and regulations) through at-the-market issuances on NASDAQ or otherwise, of which 1,312,100 of our common shares have been sold for net proceeds to us of $4,808,054 as of the date of this annual report. Roth Capital Partners, LLC (“Roth”) received compensation of $135,960 in connection with such sales.
-17-
On October 22, 2009, IntelliPharmaCeutics Ltd. (“IPC Ltd.”) and Vasogen Inc. (“Vasogen”) completed a plan of arrangement and merger (the “IPC Arrangement Agreement”), resulting in the formation of the Company. Our shareholders who received shares under the IPC Arrangement Agreement (as defined in Item 4.A) who were not deemed “affiliates” of either Vasogen, IPC Ltd., or us prior to the IPC Arrangement Agreement were able to resell the common shares that they received without restriction under the U.S. Securities Act. The common shares received by an “affiliate” after the IPC Arrangement Agreement or who were “affiliates” of either Vasogen, IPC Ltd., or us prior to the IPC Arrangement Agreement are subject to certain restrictions on resale under Rule 144.
As of the date of this annual report, there are currently common shares issuable upon the exercise of outstanding options and warrants to purchaseand the conversion of an outstanding convertible debenture for an aggregate of approximately 8.87.5 million common shares. To the extent any of our options and warrants are exercised and the convertible debenture is converted, a shareholder’s percentage ownership will be diluted and our stock price could be further adversely affected. Moreover, as the underlying shares are sold, the market price could drop significantly if the holders of these restricted shares sell them or if the market perceives that the holders intend to sell these shares.
We have no history or foreseeable prospect of paying cash dividends.
We have not paid any cash dividends on our common shares and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Dividend payments in the future may also be limited by loan agreements or covenants contained in other securities we may issue. Any future determination to pay cash dividends will be at the discretion of our board of directors and depend on our financial condition, results of operations, capital and legal requirements and such other factors as our board of directors deems relevant.
There may not be an active, liquid market for our common shares.
There is no guarantee that an active trading market for our common shares will be maintained on the NASDAQ Capital Market (“NASDAQ”) or the Toronto Stock Exchange (“TSX”). Investors may not be able to sell their shares quickly or at the latest market price if trading in our common shares is not active.
Future issuances of our shares could adversely affect the trading price of our common shares and could result in substantial dilution to shareholders.
We may need to issue substantial amounts of our common shares in the future. In this regard, in November 2013, we entered into an at-the-market program pursuant to which we may, from time to time, sell up to 5,305,484 of our common shares for up to an aggregate of $16.8 million (or such lesser amount as may be permitted under applicable securities laws and regulations) of our common shares on NASDAQ or otherwise. As of the date of this annual report, 1,312,100 of our common shares have been sold for net proceeds to us of $4,808,054. There can be no assurance that any additional shares will be sold under our at-the-market program. To the extent that the market price of our common shares declines, we will need to issue an increasing number of common shares per dollar of equity investment. In addition to our common shares issuable in connection with the exercise of our outstanding warrants, our employees, and directors will hold rights to acquire substantial amounts of our common shares. In order to obtain future financing if required, it is likely that we will issue additional common shares or financial instruments that are exchangeable for or convertible into common shares. Also, in order to provide incentives to employees and induce prospective employees and consultants to work for us, we may offer and issue options to purchase common shares and/or rights exchangeable for or convertible into common shares. Future issuances of shares could result in substantial dilution to shareholders. Capital raising activities, if available, and dilution associated with such activities could cause our share price to decline. In addition, the existence of common share purchase warrants may encourage short selling by market participants. Also, in order to provide incentives to current employees and directors and induce prospective employees and consultants to work for us, we have historically granted options and deferred share units (“DSUs”), and intend to continue to do so or offer and issue other rights exchangeable for or convertible into common shares. Future issuances of shares could result in
substantial dilution to all our shareholders. Capital raising activities and dilution associated with such activitiesIn addition, future public sales by holders of our common shares could causeimpair our share priceability to decline.raise capital through any future equity offerings.
-18-
We may in the future issue preference shares which could adversely affect the rights of holders of our common shares and the value of such shares.
Our board of directors has the ability to authorize the issue of an unlimited number of preference shares in series, and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the holders of our common shares. Although we have no preference shares issued and outstanding, preference shares issued in the future could adversely affect the rights and interests of holders of our common shares.
Our common shares may not continue to be listed on the TSX.
Failure to maintain the applicable continued listing requirements of the TSX could result in our common shares being delisted from the TSX. The TSX will normally consider the delisting of securities if, in the opinion of the exchange, it appears that the public distribution, price, or trading activity of the securities has been so reduced as to make further dealings in the securities on TSX unwarranted. Specifically, participating securities may be delisted from the TSX if, among other things, the market value of an issuer’s securities is less than C$3,000,000 over any period of 30 consecutive trading days. In such circumstances, the TSX may place an issuer under a delisting review pursuant to which the issuer would be reviewed under the TSX’s remedial review process and typically be granted 120 days to comply with all requirements for continued listing. If the market price of our common shares declines further or we are unable to maintain other listing requirements, the TSX could commence a remedial review process that could lead to the delisting of our common shares from the TSX. Further, if we complete a sale, merger, acquisition, or alternative strategic transaction, we will have to consider if the continued listing of our common shares on the TSX is appropriate, or possible.
If our common shares are no longer listed on the TSX, they may be eligible for listing on the TSX Venture Exchange. In the event that we are not able to maintain a listing for our common shares on the TSX or the TSX Venture Exchange, it may be extremely difficult or impossible for shareholders to sell their common shares in Canada. Moreover, if we are delisted from the TSX, but obtain a substitute listing for our common shares on the TSX Venture Exchange, our common shares will likely have less liquidity and more price volatility than experienced on the TSX.
Shareholders may not be able to sell their common shares on any such substitute exchange in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our common shares are delisted from the TSX, the price of our common shares is likely to decline.
Our common shares may not continue to be listed on NASDAQ.
Failure to meet the applicable quantitative and/or qualitative maintenance requirements of NASDAQ could result in our common shares being delisted from the NASDAQ Capital Market.NASDAQ. For continued listing, NASDAQ requires, among other things, that listed securities maintain a minimum bid price of not less than $1.00 per share. If the bid price falls below the $1.00 minimum for more than 30 consecutive trading days, an issuer will typically have 180 days to satisfy the $1.00 minimum bid price, which must be maintained for a period of at least ten trading days in order to regain compliance.
If we are delisted from the NASDAQ, Capital Market, our common shares may be eligible for trading on an over-the-counter market in the United States. In the event that we are not able to obtain a listing on another U.S. stock exchange or quotation service for our common shares, it may be extremely difficult or impossible for shareholders to sell their common shares in the United States. Moreover, if we are delisted from the NASDAQ, Capital Market, but obtain a substitute listing for our common shares in the United States, it will likely be on a market with less liquidity, and therefore potentially more price volatility, than the NASDAQ Capital Market.NASDAQ. Shareholders may not be able to sell their common shares on any such substitute U.S. market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these
factors, if our common shares are delisted from NASDAQ, the price of our common shares is likely to decline. In addition, a decline in the price of our common shares will impair our ability to obtain financing in the future.
-19-
Our common shares are listed for trading in the United States and may become subject to the SEC’sSecurities and Exchange Commission’s penny stock rules.
Transactions in securities that are traded in the United States by companies with net tangible assets of $5,000,000 or less and a market price per share of less than $5.00 that are not traded on NASDAQ or on other securities exchanges may be subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended (“U.S. Exchange Act”). Under these rules, broker-dealers who recommend such securities to persons other than institutional investors must:
| · | make a special written suitability determination for the purchaser; |
| · | receive the purchaser’s written agreement to a transaction prior to sale; |
| · | provide the purchaser with risk disclosure documents which identify risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and |
| · | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed. |
As a result of these requirements, if our common shares are at such time subject to the “penny stock” rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in these shares in the United States may be significantly limited. Accordingly, the market price of the shares may be depressed, and investors may find it more difficult to sell the shares.
As a foreign private issuer in the United States, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer.
As a foreign private issuer under U.S. securities laws we are not required to comply with all the periodic disclosure requirements of the U.S. Exchange Act applicable to domestic United States companies and therefore the publicly available information about us may be different or more limited than if we were a United States domestic issuer. In addition, our officers, directors, and principal shareholders are exempt from the “real time” reporting and ‘‘short swing’’ profit recovery provisions of Section 16 of the U.S. Exchange Act and the rules thereunder. Although under Canadian rules, our officers, directors and principal shareholders are generally required to file on SEDI (www.sedi.ca) reports of transactions involving our common shares within five calendar days of such transaction, our shareholders may not know when our officers, directors and principal shareholders purchase or sell our common shares as timely as they would if we were a United States domestic issuer.
We are exposed to risks if we are unable to comply with laws and future changes to laws affecting public companies, including the Sarbanes-Oxley Act of 2002, and also to increased costs associated with complying with such laws.
Any future changes to the laws and regulations affecting public companies, as well as compliance with existing provisions of the Sarbanes-Oxley Act of 2002 (‘‘(“SOX’’”) in the United States and applicable Canadian securities laws, regulations, rules and policies, may cause us to incur increased costs to comply with such laws and requirements, including, among others, hiring additional personnel and increased legal, accounting and advisory fees. Delays, or a failure to comply with the newapplicable laws, rules and regulations could result in enforcement actions, the assessment of other penalties and civil suits. The new laws and regulations may increase potential costs to be borne under indemnities provided by us to our officers and directors and may make it more difficult to obtain certain types of insurance, including liability insurance for directors and officers; as such, we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult to attract and retain qualified persons to serve on our board of directors, or as executive officers.
We are required annually to review and report on the effectiveness of our internal control over financial reporting in accordance with SOX Section 404 and Multilateral Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings of the Canadian Securities Administrators. The results of this review are reported in our Annual Report on Form 20-F and in our Management Discussion and Analysis.
Management’s review is designed to provide reasonable, not absolute, assurance that all material weaknesses in our internal controls are identified. Material weaknesses represent deficiencies in our internal controls that may not prevent or detect a misstatement occurring which could have a material adverse effect on our quarterly or annual financial statements. In addition, there can be no assurance that any remedial actions we take to address any material weaknesses identified will be successful, nor can there be any assurance that further material weaknesses will not be identified in future years. Material errors, omissions or misrepresentations in our disclosures that occur as a result of our failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, financial condition, results of operations, and the value of our common shares.
We may be classified as a “passive foreign investment company” or “PFIC” for U.S. income tax purposes, which could have significant and adverse tax consequences to U.S. investors.
The possible classification of our company as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes could have significant and adverse tax consequences for U.S. holders of our common shares and preference shares (collectively, “shares”). It may be possible for U.S. holdersHolders (as defined in Item 10 below) of shares to mitigate certain of these consequences by making an election to treat us as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Internal Revenue Code of 1986, as amended (the “Code”), (a “Mark-to-Market Election”). A non-U.S. corporation generally will be a PFIC if, for a taxable year (a) 75% or more of the gross income of such corporation for such taxable year consists of specified types of passive income or (b) on average, 50% or more of the assets held by such corporation either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if such non-U.S. corporation is not publicly traded and either is a “controlled foreign corporation” under Section 957(a) of the Code, or makes an election to determine whether it is a PFIC based on the adjusted basis of the assets).
The determination of whether we are, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to various interpretations. In addition,Although the matter is not free from doubt, we believe that we were not a PFIC during our 2013 taxable year and may not be a PFIC during our 2014 taxable year. Because PFIC status is based on our income, assets and activities for the entire taxable year, and our market capitalization, it is not possible to determine whether we will be characterized as a PFIC for the current2014 taxable year until after the close of the taxable year. The tests for determining PFIC status are subject to a number of uncertainties. These tests are applied annually, and each subsequentit is difficult to accurately predict future income, assets and activities relevant to this determination. In addition, because the market price of our common shares is likely to fluctuate, the market price may affect the determination of whether we will be considered a PFIC. There can be no assurance that we will not be considered a PFIC for any taxable year depends on(including our assets and income over the course of each such2014 taxable year and, as a result, cannot be predicted with certainty.year). Absent one of the elections described above, if we are a PFIC for any taxable year during which a U.S. holder holds our shares, we generally will continue to be treated as a PFIC regardless of whether we cease to meet the PFIC tests in one or more subsequent years. Accordingly, no assurance can be given that we will not constitute a PFIC in the current (or any future) tax year or that the Internal Revenue Service (the “IRS”) will not challenge any determination made by us concerning our PFIC status.
If we are a PFIC, the U.S. federal income tax consequences to a U.S. holder of the ownership and disposition of our shares will depend on whether such U.S. holder makes a QEF or Mark-to-Market Election.mark-to-market election. Unless otherwise provided by the IRS, a U.S. holder of our shares is generally required to file an informational return annually to report its ownership interest in the PFIC during any year in which we are a PFIC.
The foregoing does not purport to be a complete enumeration or explanation of the tax risks involved in an investment in our company. Prospective investors should read this entire annual report and consult with their own legal, tax and financial advisors before deciding to invest in our company.
-21-
It may be difficult to obtain and enforce judgments against us because of our Canadian residency.
We are governed by the laws of Canada. Most of our directors and officers are residents of Canada or other jurisdictions outside of the United States and all or a substantial portion of our assets and the assets of such persons may be located outside of the United States. As a result, it may be difficult for shareholders to effect service of process upon us or such persons within the United States or to realize in the United States on judgments of courts of
the United States predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States. In addition, there is doubt as to the enforceability in Canada of liabilities predicated solely upon U.S. federal securities law against us, our directors, controlling persons and officers who are not residents of the United States, in original actions or in actions for enforcements of judgments of U.S. courts.
A. | History and Development of the Company |
The Company was incorporated under the Canada Business Corporations Act by certificate and articles of arrangement dated October 22, 2009.
Our registered principal office is located at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2. Our telephone number is (416) 798-3001 and our facsimile number is (416) 798-3007.
On October 19, 2009, the shareholders of IPC Ltd.Ltd. and Vasogen Inc. (“Vasogen”) approved the court approved plan of arrangement and merger (the “IPC Arrangement Agreement”) that resulted in the October 22, 2009 combinationcourt-approved merger of IPC Ltd. and another U.S. subsidiary of Intellipharmaceutics Corp.Inc., coincident with an arrangement pursuant to which a predecessor of the Company combined with 7231971 Canada Inc., a new Vasogen company that acquired substantially all of the assets and certain liabilities of Vasogen, including the proceeds from its non-dilutive financing transaction with Cervus LP as described further below (the “IPC Arrangement Transaction”). The completion of the IPC Arrangement Transaction on October 22, 2009 resulted in a new publicly-traded company, Intellipharmaceutics International Inc.,the formation of the Company, which is incorporated under the laws of Canada, and whoseCanada. The common shares of the Company are traded on the TSX and NASDAQ. IPC Ltd. shareholders were issued approximately 86% of the outstanding common shares of Intellipharmaceutics and Vasogen’s shareholders were issued approximately 14% of the outstanding common shares of Intellipharmaceutics.
For the years ended November 30, 20112013, 2012 and 2010, and the eleven month period ended November 30, 2009,2011, we spent a total of $5,125,608, $4,533,310$5,060,853, $5,992,417, and $1,554,859,$5,125,608, respectively, on research and development. Over the past three fiscal years and up to May 10, 2012,February 18, 2014, we have raised approximately $28,334,855$24,696,800 in gross proceeds from the issuance of equity securities to investors.and convertible debt securities. Our common shares are listed on the TSX under the symbol “I” and on NASDAQ under the symbol “IPCI”.
During the last and current financial year, we have not been aware of any indications of public takeover offers by third parties in respect of the Company’s shares or by the Company in respect of other companies’ shares.
For additional information on key events, see Item 4.B below.
B. | Business Overview |
We are a pharmaceutical company specializing in the research, development and manufacture of novel and generic controlled-release and targeted-release oral solid dosage drugs. Our Drug Delivery Technologies
We were granted final FDA approval to flexibly respondmarket our dexmethylphenidate hydrochloride extended-release capsules for the 15 and 30 mg strengths on November 18, 2013. Commercial sales of these strengths were launched immediately by our commercialization partner in the United States, Par. As the first-filer for the drug product in the 15 mg strength, we will have 180 days of exclusivity of generic sales from the date of launch of such product in the United States by our partner, Par. Our 5, 10, 20 and 40 mg strengths were also tentatively FDA approved, subject to a wide rangethe right of drug attributes and patient requirements, producing a desired controlled-release effect. Our technologiesanother party or parties to 180 days of generic exclusivity from the date of first launch of such products by such parties. We believe that Par intends to launch these strengths immediately upon the expiry of those exclusivity periods, but there can be no assurance as to when or if any launch will occur. There can be no assurance as to when or if final FDA approval will be received for the remaining product strengths we have been comprised and constituted in drugs manufactured and sold by major pharmaceutical companies.applied for or that any of these strengths tentatively approved will ever be successfully commercialized.
Our Strategy
We believe that our Hypermatrix™ technologies are a multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a wide range of existing and new pharmaceuticals. We believe that the flexibility of these technologies allow us to develop complex drug delivery solutions within a relatively rapid timeframe. Based on our technologies,this technology platform, we have developed several drug delivery systems and a pipeline of products (our dexmethylphenidate hydrochloride extended-release capsules for the 15 and 30 mg strengths which recently received final FDA approval) and product candidates in various stages of development, including six ANDAs under review byfiled with the FDA in therapeutic areas that include neurology, cardiovascular, gastrointestinal tract, diabetes, pain and infection.FDA. Certain, but not all, of the products in our pipeline may be developed from time to time for third parties pursuant to drug development agreements with those third parties, under which our development partner generally pays certain of the expenses of development, sometimes makes certain milestone payments to us and receives a share of revenues or profits if the drug is developed successfully to completion, the control of which is generally in the discretion of our drug development partner. At this time, there is one such product in multiple strengths being developed in cooperation with a development partner.
The Hypermatrix™ technologies are applied to the development of both existing and new pharmaceuticals across a range of therapeutic classes. The competitive advantages of these technologies allow us to focus our development activities in two areas; difficult-to-develop controlled-release generic drugs, which follow an ANDA regulatory path; and improved current therapies through controlled release, which follow ana NDA 505(b)(2) regulatory path.
The market we operate in is created by the expiration of drug product patents, challengeable patents and drug product exclusivity periods. There are three ways that we employ our controlled-release technologies, which we believe represent substantial opportunities for us to licensecommercialize on our own or develop products or out-license our technologies and products:
| · | For existing controlled-release (once-a-day) products whose APIs are covered by drug molecule patents about to expire or already expired, or whose formulations are covered by patents about to expire, already expired or which we believe we do not infringe, we can seek to formulate generic products which are bioequivalent to the branded products. Our scientists have demonstrated a successful track record with such products, having previously developed several drug products which have been commercialized in the United States by their former employer/clients. The regulatory pathway for this approach requires ANDAs for the United States and corresponding pathways for other jurisdictions. |
| · | For branded immediate-release (multiple-times-per-day) drugs, we can formulate improved replacement products, typically by developing new, potentially patentable, controlled-release once-a-day drugs. Among other out-licensing opportunities, these drugs can be licensed to and sold by the pharmaceutical company that made the original immediate-release product. |
-23-
| · | Some of our technologies are also focused on the development of abuse-deterrent pain medications. The growing abuse and diversion of prescription “painkillers”, specifically opioid analgesics, is well documented and is a major health and social concern. We believe that our technologies and know-how are aptly suited to developing abuse-deterrent pain medications. The regulatory pathway for this approach requires NDAs via a 505(b)(2) application for the U.S. or corresponding pathways for other jurisdictions where applicable. |
We intend to collaborate in the development and/or marketing of one or more products with partners, when we believe that such collaboration may enhance the outcome of the project. We also plan to seek additional collaborations as a means of developing additional products. We believe that our business strategy enables us to reduce our risk by (a) having a diverse product portfolio that includes both branded and generic products in various therapeutic categories, and (b) building collaborations and establishing licensing agreements with companies with greater resources thereby allowing us to share costs of development and to improve cash-flow. There can be no assurance that we will be able to enter into additional collaborations or, if we do, that such arrangements will be beneficial.
We may also, from time to time, provide incidental consulting advice to other organizations regarding FDA standards.
Our Drug Delivery Technologies
Our scientists have developed drug delivery technology systems, based on the Hypermatrix™ platform, that facilitate controlled-release delivery of a wide range of pharmaceuticals. These systems include several core technologies, which enable us to flexibly respond to a wide range of drug attributes and patient requirements, producing a desired controlled-release effect. Our technologies have been incorporated in drugs manufactured and sold by major pharmaceutical companies.
This group of drug delivery technology systems is based upon the drug active ingredient (“drug active”) being imbedded in, and an integral part of, a homogeneous (uniform), core and/or coatings consisting of one or more polymers which affect the release rates of drugs, other excipients (compounds other than the drug active), such as for instance lubricants which control handling properties of the matrix during fabrication, and the drug active itself. The Hypermatrix™ technologies are the core of our current marketing efforts and the technologies underlying our existing development agreements.
Our platform of Hypermatrix™ drug delivery technologies include, but are not limited to, IntelliFoam™, IntelliGITransporter™, IntelliMatrix™, IntelliOsmotics™, IntelliPaste™, IntelliPellets™, IntelliShuttle™ and nPODDDS™. Some of their key attributes are described below.
These technologies provide a broad range of release profiles, taking into account the physical and chemical characteristics of a drug product, the therapeutic use of the particular drug, and the optimal site for release of the API in the GIT. At present those technologies have been applied in the laboratory and/or in bioavailability/bioequivalence studies in man to such orally administered small molecule drugs as are used in the treatment of neurological, cardiovascular, GIT, diabetes, pain and other significant indications.
The Hypermatrix™ Family of Technologies
IntelliFoam™
The IntelliFoam™ technology is based on the drug active being embedded in, but separate from a syntactic foam substrate, the properties of which are used to modulate the release of the drug active. The drug actives are embedded in a resin polymer matrix.
-24-
IntelliGITransporter™
The IntelliGITransporter™ technology consists of an active drug immobilized in a homogeneous (uniform) matrix structure. A precise choice of mix ratios, polymers, and other ingredients imparts characteristics which protect the drug composition from mechanical degradation due to digestion, and/or from chemical degradation in the acidic stomach environment, and ensures that this technology allows control of release as well as releasing the medication at certain parts of the stomach or intestines without significant food effects or unintentional premature release of the entire drug dose. We believe that this technology is most useful for drug molecules with characteristics such as very low or very high potency, opiate analgesics (pain medications derived from the chemical compounds found in opium), or susceptibility to acid degradation. It is also useful for products where a zero-order (constant rate over time, independent of the amount of drug available for dissolution) release profile is desirable.
IntelliMatrix™
The IntelliMatrix™ technology is a proprietary blend of several polymers. Depending on the constituents of the blend and the manner in which these interact, the use of the blend with a drug allows the drug to be released at predetermined rates, while imparting protective characteristics to both the drug and the GIT. This is most useful for drugs which require precisely controlled first-order release profiles, where the amount released with time is dependent on one component like the amount of drug available for dissolution.
IntelliOsmotics™
The IntelliOsmotics™ technology is based upon the inclusion of multiple populations of polymers with distinct chemical bonding characteristics. These set up a complex matrix of hydrophilic (water attracting) and hydrophobic (water repelling) domains. When the tablet or bead is in an aqueous environment, like gastric contents, a “mixture” of water-soluble polymer and drug core is surrounded by gel layer(s) of water-insoluble polymer. Osmotic pressure drives the drug out when solvent passes through the gel layer while the polymer molecules remain. This permits control of the rate of release of the drug active by the variation of polymer ratios. This technology is most useful for drug molecules which require precisely controlled pseudo-first-order release profiles, where the rate of release is proportional to the amount available for dissolution as well as being proportional to one other component; however the effect of the amount of drug is overriding, so that the rate appears first-order. This type of release control can be useful when attempting to match difficult profiles for generic formulation.
IntelliPaste™
The IntelliPaste™ technology is comprised of blends of multiple polymers, oils, excipients and drug active(s) which result in a paste-in-a-capsule dosage form. The physical attributes of the paste include that it is thixotropic, pseudoplastic and non-Newtonian or, in layman’s terms, like toothpaste. Typically, it is formulated as having very low solubility in water or oil, and low solubility in alcohol. These characteristics enable the resulting drug product to have tamper-deterrent properties, and to resist dissolution in even high concentrations of alcohol. As a result, IntelliPaste™ is the Company’s preferred delivery technology for the controlled delivery of opiates, narcotics and other central nervous system drug products which are susceptible to unlawful diversion or abuse.
IntelliPellets™
The IntelliPellets™ technology consists of one or more type (population) of granule, bead, pellet, or tablet in a holding chamber or reservoir, such as a hard gelatin capsule. Each type (population) may be uniquely different from the other in the manner or rate it releases the drug. Our IntelliPellets™ technology is designed to control, prolong, delay or modify the release of drugs. It is particularly useful for the delivery of multiple drugs, for delayed, timed, pulsed or for chronotherapeutic drug delivery, designed to mimic our internal clocks for therapeutic optimization (the drug is delivered in the right amount for the patient at the right time). This technology is most useful for the delivery of multiple-drug cocktails, or in situations where the timing of a single dose or the sequencing of multiple doses of the same drug is important.
-25-
IntelliShuttle™
The IntelliShuttle™ technology provides for drug release past the stomach, such as for drugs required for action beyond the stomach, for drugs which could be destroyed by the stomach environment, or for drugs which could harm the stomach itself. This technology “shuttles” the drug past the stomach to be released at predetermined times or sites where appropriate for optimum therapeutic effect. This technology is most useful for acid labile drug molecules (drugs that are destroyed in acid environment), such as the proton pump inhibitors, of which well-known omeprazole (Prilosec) and lansoprazole (Prevacid) are examples, or for drug molecules which may harm the stomach, of which the well-known aspirin is an example.
Each of the above-noted proprietary technologies was fully developed and ready for application to client drug delivery requirements from the date of our inception. Each of them has been utilized and applied to client drug delivery requirements under our existing and previous development contracts; in several instances more than one technology has been applied to a single drug development. We continue to develop all of our existing technologies and to conduct the necessary research to develop new products and technologies.
nPODDDS™ (novel point of divergence drug delivery system)
The nPODDDS™ technology platform is designed to provide for certain unique drug delivery features in a product. These include the release of the active substance to show a divergence in a dissolution and/or bioavailability profile. The divergence represents a point or a segment in a release timeline where the release rate, represented by the slope of the curve, changes from an initial rate or set of rates to another rate or set of rates, the former representing the usually higher rate of release shortly after ingesting a dose of the drug, and the latter representing the rate of release over a later and longer period of time, being more in the nature of a controlled-release or sustained action. It is applicable for the delivery of opioid analgesics in which it is desired to discourage common methods of tampering associated with misuse and abuse of a drug, and also dose dumping in the presence of alcohol. It can potentially retard tampering without interfering with the bioavailability of the product.
Our Products
The table below shows the present status of our ANDA and NDA product candidates that have been disclosed publicly.
to the public.
| Generic name | Brand | Indication | Stage of Development(1) | Regulatory Pathway | Market Size (in millions)(2) | Rights(3) |
| Dexmethylphenidate hydrochloride extended-release capsules | Focalin XR® | ANDA | $691 | Intellipharmaceutics and Par | ||
| Venlafaxine hydrochloride extended-release capsules | Effexor XR® | Depression | ANDA application for commercialization approval for 3 strengths under review by FDA | ANDA | $709 | Intellipharmaceutics |
| Pantoprazole sodium delayed- release tablets | Protonix® | Conditions associated with gastroesophageal reflux disease | ANDA application for commercialization approval for 2 strengths under review by FDA | ANDA | $330 | Intellipharmaceutics |
| Metformin hydrochloride extended-release tablets | Glucophage® XR | Management of type 2 diabetes | ANDA application for commercialization approval for 2 strengths under review by FDA | ANDA | $553 | Intellipharmaceutics |
| Quetiapine fumarate extended-release tablets | Seroquel XR® | Schizophrenia, bipolar disorder & major depressive disorder | ANDA application for commercialization approval for 5 strengths under review by FDA | ANDA | $1,142 | Intellipharmaceutics |
-26-
| Lamotrigine extended-release tablets | Lamictal® XR™ | Anti-convulsant for epilepsy | ANDA application for commercialization approval for 4 strengths under review by FDA | ANDA | $367 | Intellipharmaceutics |
| Levetiracetam extended-release tablets | Keppra XR® | Partial onset seizures for epilepsy | ANDA application for commercialization for 2 strengths under review by FDA | ANDA | $157 | Intellipharmaceutics |
| Desvenlafaxine extended-release tablets | Pristiq® | Depression | ANDA application for commercialization approval for 2 strengths filed with the FDA | ANDA | $722 | Intellipharmaceutics |
| Carvedilol phosphate extended- release capsules | Coreg CR® | Heart failure, hypertension | Late-stage development | ANDA | $268 | Intellipharmaceutics |
| Oxycodone hydrochloride controlled-release capsules | Pain | NDA 505(b)(2) | $2,302 | Intellipharmaceutics | ||
| Pregabalin extended-release capsules | Lyrica® | Neuropathic pain | Phase I clinical trial | NDA 505(b)(2) | $2,547 | Intellipharmaceutics |
Notes:
| (1) | There can be no assurance when, or if at all, the FDA will approve any product candidate for sale in the U.S. market. |
| (2) | Represents sales for the 12 months ended January 2014 in the U.S., including sales of generics in TRx MBS Dollars, which represents projected new and refilled prescriptions representing a standardized dollar metric based on manufacturer’s published catalog or list prices to wholesalers, and does not represent actual transaction prices and does not include prompt pay or other discounts, rebates or reductions in price. Source: Source Healthcare Analytics. |
| (3) | For unpartnered products, we are exploring licensing agreement opportunities or other possibilities. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured. |
We typically select products for development that we intend to commercializeanticipate could achieve FDA approval for commercial sales several years in the future. However, the length of time necessary to bring a product to the point where the product can be commercialized can
vary significantly and depends on, among other things, the availability of funding, design and formulation challenges, safety or efficacy, patent issues associated with the product, and FDA review times.
Dexmethylphenidate Hydrochloride – Generic Focalin XR® (a registered trademark of the brand manufacturer)
Our FDA filings for approval to market generic versions of Focalin XR® in various strengths gave rise in the U.S. were approximately $634 million (TRx Price, which represents projected new and refilled prescription dollar amounts the pharmacy indicates it charges the patient and/or third party for the prescription, and is based on cost plus dispensing fee) and $554 million (TRx MBS Dollars, which represents projected new and refilled prescriptions representing a standardized dollar metric based on manufacturer’s published catalog or list pricesusual course to wholesalers, and does not represent actual transaction prices and does not include prompt pay or other discounts, rebates or reductions in price).
-27-
On November 18, 2013, the FDA granted us final approval to market our dexmethylphenidate hydrochloride extended-release capsules for the sale15 and 30 mg strengths. Commercial sales of these strengths were launched immediately by our commercialization partner in the United States, Par. As the first-filer for the drug product in the 15 mg strength, we will have 180 days of exclusivity of generic sales from the date of launch of such product in the United States by our partner, Par. Our 5, 10, 20 and 40 mg strengths were also tentatively FDA approved, subject to the right of another party or parties to 180 days of generic exclusivity from the date of first launch of such products by such parties. We believe that Par intends to launch these strengths immediately upon the expiry of those exclusivity periods, but there can be no assurance as to when or if any launch will occur. There can be no assurance as to when or if final FDA approval will be received for the remaining product strengths we have applied for or that any of these strengths tentatively approved will ever be successfully commercialized.
In February 2014, we announced the receipt of approximately $3.1 million as our first payment relating to commercial sales of dexmethylphenidate hydrochloride extended-release capsules in the U.S., which commences with the commercial launch of the product by Par. Our ANDA applicationThis represents our licensing revenue for the four strengths remains under review, and there can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S. market.
Rexista™ Oxycodone (Oxycodone Hydrochloride)
Rexista™ is intended to provide deterrence against intentional drug abuse and unintentional dose dumping. Dose dumping is the rapid release of an active ingredient from a controlled-release drug into the entire dose when consumedblood stream that can result in increased toxicity, side effects, and a loss of efficacy. Dose dumping can result by consuming the drug through crushing, taking with alcohol, a significant problemextracting with some opioid drugs. According to Wolters Kluwer Health, sales of OxyContin® (oxycodone hydrochloride controlled-release tablets) in the United States were approximately $2.9 billion (TRx Price) and $2.5 billion (TRx MBS Dollars) for the 12 months ended March 2012. OxyContin® currently represents 99% of the $2.5 billion (TRx Price) and $2.9 billion (TRx MBS Dollars) oxycodone sustained-release market.other beverages, vaporizing or injecting.
We conducted a randomized, cross-over, comparative bioavailability, Phase I clinical trial on 12 subjects in a fasted state comparing a single dose of 40 mg Rexista™ oxycodone with a single dose of 40 mg OxyContin®. In this study, the bioavailability of a single dose of Rexista™ oxycodone was equivalent to that of OxyContin®, as measured by the respective areas under the curve (“AUC”). The value for AUC essentially provides an estimation of total drug exposure by comparing ratios between Rexista™ oxycodone and OxyContin®. The ratios obtained were within 80% - 125% at the 90% confidence interval. This indicates that the technology platform in our formulation of Rexista™ oxycodone, nPODDDS™, does not interfere with the bioavailability of oxycodone. We intend to apply the nPODDDS™ technology platform to other opioid drug candidates (e.g., oxymorphone, hydrocodone, and morphine).
The FDA is actively developing a regulatory program for the narcotic analgesic class of products. In January 2013, the FDA issued a draft guidance document, “Guidance for Industry: Abuse-Deterrent Opioids – Evaluation and Labeling”, to assist the industry in developing new formulations of opioid drugs with abuse-deterrent properties. In April 2011, the White House and2013, the FDA announcedapproved updated labeling for reformulated OxyContin® tablets. The new labeling indicates that the physical and chemical properties of reformulated OxyContin® are expected to make abuse via injection difficult, and to reduce abuse via the intranasal route. The original OxyContin® was withdrawn for reasons of safety or effectiveness, resulting in the FDA refusing to accept or approve any ANDA of original OxyContin®.
-28-
In July 2012, the FDA approved a new Risk Evaluation and Mitigation Strategy (“REMS”) requirement for all extended-release and long-acting opioid medications. The new REMS plan focusessafety measures require companies to make education programs available to prescribers based on educating doctors about proper pain management,an FDA Blueprint, make available FDA-approved patient selection, and other requirements and improving patient awareness about how toeducation materials on the safe use of these drugs, safely. The FDA has indicated it wants companiesand perform periodic assessments of the implementation of the REMS and the success of the program in meeting its goals. Education programs are currently offered to give patients educational materials, including a medication guide that uses consumer friendly language to explain safe use and disposal. Doctor training, patient counselling and other REMS risk reduction measures are expected to become effective in 2012.prescribers. We believe that the REMS will ultimately drive prescribing of newer tamper-deterrent extended-release opioids. Several “tamper-deterrent” formulations of oral opioid analgesics are being developed by other companies. We believe that the FDA’s opioid REMS should benefit tamper-deterrent products.
We believe that we can leverage our core competencies in drug delivery and formulation for the development of products targeted towards tamper-deterrent opioid analgesics used in pain management. The advantage of our strategy for development of NDA drugs is that our products can, if approved for sale, enjoy a sales exclusivity period. Furthermore, it may be possible to establish and defend the intellectual property surrounding our tamper-deterrent opioid analgesic products.
Regabatin™ XR (Pregabalin Extended-Release)
Another Intellipharmaceutics non-generic controlled-release product under development is Regabatin™ XR, pregabalin extended-release capsules. Pregabalin is indicated for the management of neuropathic pain associated with diabetic peripheral neuropathy, postherpetic neuralgia, spinal cord injury and fibromyalgia. There is no controlled-release formulation on the market at this time. A controlled-release version of pregabalin should reduce the number of doses patients take, potentially improving patient compliance, and therefore potentially improving clinical outcomes.
The Company successfully completed an initial Phase I clinical trial of a pre-Investigational New Drug ("pre-IND") meeting with a panelcontrolled-release pregabalin formulation. This was the first bioavailability study of the FDA’s Center of Drug Evaluation and Research discussing the Rexista™ oxycodone development plan.our controlled-release pregabalin versus Lyrica® (immediate release pregabalin). The study was carried out in 14 subjects. The results showed that our 150 mg pregabalin once-a-day dosage was comparable in bioavailability to Lyrica® 50 mg three-times-a-day dosage. We also plan to complete manufacture of clinical batches of Rexista™ oxycodone for use in phaseinitiate additional Phase I clinical trials that are expected to be initiated in fiscal 2012.2014. There can be no assurance that we will be able to successfully produce scaled-up batches for use in clinical trials, or that theadditional clinical trials will meet our expected outcomes, orexpectations, that we will be successful in submitting ana NDA 505(b)(2) filing.filing with the FDA, that the FDA will approve this product candidate for sale in the U.S. market, or that it will ever be successfully commercialized.
COMPETITIVE ENVIRONMENT
We are engaged in a business characterized by extensive research efforts, rapid technological developments and intense competition. Our competitors include medical technology, pharmaceutical, biotechnology and other companies, universities and research institutions. All of these competitors currently engage in, have engaged in or may engage in the future, in development, manufacturing, marketing and commercialization of new pharmaceuticals and existing pharmaceuticals, some of which may compete with our present or future products and product candidates.
Our drug delivery technologies may compete with existing drug delivery technologies, as well as new drug delivery technologies that may be developed or commercialized in the future. Any of these drugs and drug delivery technologies may receive government approval or gain market acceptance more rapidly than our products and product candidates. As a result, our products and product candidates may become noncompetitive or obsolete.
We believe that our ability to successfully compete will depend on, among other things, the efficacy, safety and reliability of our products and product candidates, the timing and scope of regulatory approval, the speed at which we develop product candidates, our, or our commercialization partners’, ability to manufacture and sell commercial quantities of a product to the market, product acceptance by physicians and other professional healthcare providers, the quality and breadth of our technologies, the skills of our employees and our ability to recruit and retain skilled employees, the protection of our intellectual property, and the availability of substantial capital resources to fund development and commercialization activities.
-29-
MANUFACTURING
We have internal manufacturing capabilities consisting of Currentcurrent Good Laboratory Practices (“cGLP”) research laboratories and a cGMP manufacturing plant for solid oral dosage forms at our 30 Worcester Road facility in Toronto. Raw materials used in manufacturing our products are available from a number of commercial sources and the prices for such raw materials are generally not particularly volatile.
INTELLECTUAL PROPERTY
Proprietary rights are an important aspect of our business. These include know-how, trade secrets and patents. Know-how and trade secrets are protected by internal company policies and operating procedures, and where necessary, by contractual provisions with development partners and suppliers. We also seek patent protection for inventive advances which form the bases of our drug delivery technologies. With respect to particular products, we may seek patent protection on the commercial composition, our methods of production and our uses, to prevent the unauthorized marketing and sale of competitive products.
Patents which relate to and protect various aspects of our HyperMatrixHypermatrix™ family of drug delivery technologies include the following United States, Japanese and Canadian patents which have been issued to us:
| Country | Issue | Issue | Title | |
| U.S.A | Dec 10, 2013 | 8,603,520 | Oral Multi-functional Pharmaceutical Capsule Preparations of Proton Pump Inhibitors | |
| U.S.A. | Controlled Extended Drug Release Technology | |||
| U.S.A | Mar 15, 2011 | 7,906,143 | Controlled Release | |
| Aug | 7,090,867 | Novel Controlled Release Delivery Device for Pharmaceutical Agents Incorporating Microbial Polysaccharide Gum | ||
| Oct 5, 2004 | 6,800,668 | Syntactic Deformable Foam Compositions and Methods for Making | ||
| 6,652,882 | Controlled Release Formulation Containing Bupropion | |||
| U.S.A | Aug | 6,607,751 | Novel Controlled Release Delivery Device for Pharmaceutical Agents Incorporating Microbial Polysaccharide Gum | |
| U.S.A | Nov 12, 2002 | 6,479,075 | Pharmaceutical Formulations for Acid Labile Substances | |
| U.S.A | Oct 2, 2001 | 6,296,876 | Pharmaceutical Formulations for Acid Labile Substances | |
| Japan | Aug 30, 2013 | 5,349,290 | Drug Delivery Composition | |
| Canada | 2,626,558 | Pharmaceutical Composition having Reduced Abuse Potential | ||
| Canada | Sep 25, 2012 | 2,529,984 | Oral Multi-Functional Pharmaceutical Capsule Preparations of Proton Pump Inhibitors | |
| Canada | Feb 22, 2011 | 2,459,857 | Combinatorial Type Controlled Release Drug Delivery Device | |
| Canada | Mar 15, 2005 | 2,435,276 | Syntactic Deformable Foam Compositions and Methods for Making | |
In addition to these issued patents, we have several U.S. patent applications, and corresponding foreign applications pending, including Patent Cooperation Treaty (“PCT”)- national stage processing and entry applications, relating to various aspects of our HyperMatrixHyperMatrix™ drug delivery technologies, including methods and compositions for coating of tablets and beads, compositions incorporating disintegrants to assist in controlled release, compositions incorporating multiple drug actives, and compositions directed to classes of drug actives designed as therapies for specific indications and compositions intended to enhance deterrence of willful abuse of narcotic compositions.
REGULATORY REQUIREMENTS
We focus on the development of both branded drug products (which require NDAs) and generic drug products (which require ANDAs). The research and development, manufacture and marketing of controlled-release pharmaceuticals are subject to regulation by U.S., Canadian and other governmental authorities and agencies. Such national agencies and other federal, state, provincial and local entities regulate the testing, manufacturing, safety and promotion of our products. The regulations applicable to our products may change as the currently limited number of approved controlled-release products increases and regulators acquire additional experience in this area.
-30-
United States Regulation
New Drug Application
We will be required by the FDA to comply with NDA procedures for our branded products prior to commencement of marketing by us or our licensees. New drug compounds and new formulations for existing drug compounds which cannot be filed as ANDAs are subject to NDA procedures. These procedures include (a) preclinical laboratory and animal toxicology tests; (b) scaling and testing of production batches; (c) submission of an Investigational New Drug Application (“IND”), and subsequent approval is required before any human clinical trials can commence; (d) adequate and well controlled replicate human clinical trials to establish the safety and efficacy of the drug for its intended indication; (e) the submission of an NDA to the FDA; and (f) FDA approval of an NDA prior to any commercial sale or shipment of the product, including pre-approval and post-approval inspections of our manufacturing and testing facilities. If all of this data in the product application is owned by the applicant, the FDA will issue its approval without regard to patent rights that might be infringed or exclusivity periods that would affect the FDA’s ability to grant an approval if the application relied upon data which the applicant did not own. We intend to generate all data necessary to support FDA approval of the applications we file.
Preclinical laboratory and animal toxicology tests may have to be performed to assess the safety and potential efficacy of the product. The results of these preclinical tests, together with information regarding the
methods of manufacture of the products and quality control testing, are then submitted to the FDA as part of an IND requesting authorization to initiate human clinical trials. Once the IND notice period has expired, clinical trials may be initiated, unless an FDA hold on clinical trials has been issued.
Clinical trials involve the administration of a pharmaceutical product to individuals under the supervision of qualified medical investigators who are experienced in conducting studies under “Good Clinical Practice” guidelines. Clinical studies are conducted in accordance with protocols that detail the objectives of a study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA and to an Institutional Review Board prior to the commencement of each clinical trial. Clinical studies are typically conducted in three sequential phases, which may overlap. In Phase I, the initial introduction of the product into human subjects, the compound is tested for absorption, safety, dosage, tolerance, metabolic interaction, distribution, and excretion. Phase II involves studies in a limited patient population with the disease to be treated to (1) determine the efficacy of the product for specific targeted indications, (2) determine optimal dosage and (3) identify possible adverse effects and safety risks. In the event Phase II evaluations demonstrate that a pharmaceutical product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken to further evaluate clinical efficacy of the product and to further test its safety within an expanded patient population at geographically dispersed clinical study sites. Periodic reports on the clinical investigations are required.
We, or the FDA, may suspend clinical trials at any time if either party believes the clinical subjects are being exposed to unacceptable health risks. The results of the product development, analytical laboratory studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercialization of a pharmaceutical product..product.
Abbreviated New Drug Application
In certain cases, where the objective is to develop a generic version of an approved product already on the market in controlled-release dosages, an ANDA may be filed in lieu of filing an NDA. Under the ANDA procedure, the FDA waives the requirement to submit complete reports of preclinical and clinical studies of safety and efficacy and instead requires the submission of bioequivalency data, that is, demonstration that the generic drug produces the same effect in the body as its brand-name counterpart and has the same pharmacokinetic profile, or change in blood concentration over time. The ANDA procedure is available to us for a generic version of a drug product approved by the FDA. In certain cases, an ANDA applicant may submit a suitability petition to the FDA requesting permission to submit an ANDA for a drug product that differs from a previously approved reference drug product (the “Listed Drug”) when the change is one authorized by statute. Permitted variations from the Listed Drug include changes in: (1) route of administration, (2) dosage form, (3) strength and (4) one of the active ingredients of the Listed Drug when the Listed Drug is a combination product. The FDA must approve the petition before the ANDA may be submitted. An applicant is not permitted to petition for any other kinds of changes from Listed Drugs. The information in a suitability petition must demonstrate that the change from the Listed Drug requested for the proposed drug product may be adequately evaluated for approval without data from investigations to show the proposed drug product’s safety or effectiveness. The advantages of an ANDA over an NDA include reduced research and development costs associated with bringing a product to market, and generally a shorter review and approval time at the FDA.
-31-
GDUFA implemented substantial fees for new ANDAs, Drug Master Files, product and establishment fees and a one-time fee for back-logged ANDAs pending approval as of October 1, 2012. In return, the program is intended to provide faster and more predictable ANDA reviews by the FDA and increased inspections of drug facilities. For the FDA's fiscal years 2013 and 2014, respectively, the user fee rates are $51,520 and $63,860 for new ANDAs, $25,760 and $31,930 for Prior Approval Supplements, and $17,434 for each ANDA already on file at the FDA. For the FDA’s fiscal year 2013 and 2014, there is also an annual facility user fee of $190,389 and $235,152, respectively. Under GDUFA, generic product companies face significant penalties for failure to pay the new user fees, including rendering an ANDA not “substantially complete” until the fee is paid. It is currently uncertain the effect the new fees will have on our ANDA process and business. However, any failure by us or our suppliers to pay the fees or to comply with the other provisions of GDUFA may adversely impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus may have a material adverse effect on our business, results of operations and financial condition.
Patent Certification and Exclusivity Issues
ANDAs are required to include certifications with respect to any third party patents that claim the Listed Drug or that claim a use for the Listed Drug for which the applicant is seeking approval. If applicable third party patents are in effect and this information has been submitted to the FDA, the FDA must delay approval of the ANDA until the patents expire. If the applicant believes it will not infringe the patents, it can make a patent certification to the holder of patents on the drug for which a generic drug approval is being sought, which may result in patent infringement litigation which could delay the FDA approval of the ANDA for up to 30 months. If the drug product covered by an ANDA were to be found by a court to infringe another company’s patents, approval of the ANDA could be delayed until the patents expire. Under the Food Drug and Cosmetic Act (“FDC”FDC”), the first filer of an ANDA with a “non-infringement” certification is entitled to receive 180 days of market exclusivity. Subsequent filers of generic products would be entitled to market their approved product six months after the earlier of the first commercial marketing of the first filer’s generic product or a successful defense of a patent infringement suit. A company having approval and permission from the original brand owner is able to market an authorized generic at any time. In the case of our 15 mg dexmethylphenidate hydrochloride extended-release capsules, commercial sales commenced on or about November 19, 2013 and therefore subsequent filers will be entitled to enter the market no earlier than 180 days after such commencement date.
The 180-day exclusivity period can be forfeited if the first applicant withdraws its application or the FDA considers the application to have been withdrawn, the first applicationapplicant amends or withdraws Paragraph IV Certification for all patents qualifying for 180 day exclusivity, or failure of the first applicant fails to obtain tentative approval within 30 months after the date filed unless, failure is due to a change in review requirements. The preservation of the 180 day exclusivity period related to the first-to-file status of a drug not approved within 30 months after the date filed, generally requires that an application be made to the FDA for extension of the time period where the delay has been due to a change in the review requirements for the drug. The approval of the continued first-to-file status in such circumstances is subject to the discretion of the FDA. There can be no assurance that the FDA would accede to such a request if made.
Patent expiration refers to expiry of U.S. patents (inclusive of any extensions) on drug compounds, formulations and uses. Patents outside the United States may differ from those in the United States. Under U.S. law, the expiration of a patent on a drug compound does not create a right to make, use or sell that compound. There may be additional patents relating to a person’s proposed manufacture, use or sale of a product that could potentially prohibit such person’s proposed commercialization of a drug compound.
-32-
The FDC contains non-patent market exclusivity provisions that offer additional protection to pioneer drug products and are independent of any patent coverage that might also apply. Exclusivity refers to the fact that the effective date of approval of a potential competitor’s ANDA to copy the pioneer drug may be delayed or, in certain cases, an ANDA may not be submitted until the exclusivity period expires. Five years of exclusivity are granted to the first approval of a “new chemical entity”. Three years of exclusivity may apply to products which are not new chemical entities, but for which new clinical investigations are essential to the approval. For example, a new indication for use, or a new dosage strength of a previously approved product, may be entitled to exclusivity, but only with respect to that indication or dosage strength. Exclusivity only offers protection against a competitor entering the market via the ANDA route, and does not operate against a competitor that generates all of its own data and submits a full NDA.
If applicable regulatory criteria are not satisfied, the FDA may deny approval of an NDA or an ANDA or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA may require further testing and surveillance programs to monitor the pharmaceutical product that has been commercialized. Non-compliance with applicable requirements can result in additional penalties, including product seizures, injunction actions and criminal prosecutions.
Canadian Regulation
The requirements for selling pharmaceutical drugs in Canada are substantially similar to those of the United States described above.
Investigational New Drug Application
Before conducting clinical trials of a new drug in Canada, we must submit a Clinical Trial Application (“CTA”) to the Therapeutic Products Directorate (“TPD”). This application includes information about the proposed trial, the methods of manufacture of the drug and controls, preclinical laboratory and animal toxicology tests on the safety and potential efficacy of the drug, and information on any previously executed clinical trials with the new drug. If, within 30 days of receiving the application, the TPD does not notify us that our application is unsatisfactory, we may proceed with clinical trials of the drug. The phases of clinical trials are the same as those described above under “United States Regulation – New Drug Application”.
New Drug Submission
Before selling a new drug in Canada, we must submit a New Drug Submission (“NDS”) or Supplemental New Drug Submission (“sNDS”) to the TPD and receive a Notice of Compliance (“NOC”) from the TPD to sell the drug. The submission includes information describing the new drug, including its proper name, the proposed name under which the new drug will be sold, a quantitative list of ingredients in the new drug, the methods of manufacturing, processing, and packaging the new drug, the controls applicable to these operations, the tests
conducted to establish the safety of the new drug, the tests to be applied to control the potency, purity, stability and safety of the new drug, the results of bio-pharmaceutics and clinical trials as appropriate, the intended indications for which the new drug may be prescribed and the effectiveness of the new drug when used as intended. The TPD reviews the NDS or sNDS. If the submission meets the requirements of Canada’s Food and Drugs Act and Regulations, the TPD will issue an NOC for the new drug.
Where the TPD has already approved a drug for sale in controlled-release dosages, we may seek approval from the TPD to sell an equivalent generic drug through an Abbreviated New Drug Submission (“ANDS”). In certain cases, the TPD does not require the manufacturer of a proposed drug that is claimed to be equivalent to a drug that has already been approved for sale and marketed, to conduct clinical trials; instead, the manufacturer must satisfy the TPD that the drug is bioequivalent to the drug that has already been approved and marketed.
The TPD may deny approval or may require additional testing of a proposed new drug if applicable regulatory criteria are not met. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Contravention of Canada’s Food and Drugs Act and Regulations can result in fines and other sanctions, including product seizures and criminal prosecutions.
-33-
Proposals have recently been made that, if implemented, would significantly change Canada’s drug approval system. In general, the recommendations emphasize the need for efficiency in Canadian drug review. Proposals include establishment of a separate agency for drug regulation and modeling the approval system on those found in European Union countries. There is no assurance, however, that such changes will be implemented or, if implemented, will expedite the approval of new drugs.
The Canadian government has regulations which can prohibit the issuance of an NOC for a patented medicine to a generic competitor, provided that the patentee or an exclusive licensee has filed a list of its Canadian patents covering that medicine with the Minister of Health and Welfare. After submitting the list, the patentee or an exclusive licensee can commence a proceeding to obtain an order of prohibition directed to the Minister prohibiting him or her from issuing an NOC. The minister may be prohibited from issuing an NOC permitting the importation or sale of a patented medicine to a generic competitor until patents on the medicine expire or the waiver of infringement and/or validity of the patent(s) in question is resolved by litigation in the manner set out in such regulations. There may be additional patents relating to a company’s proposed manufacture, use or sale of a product that could potentially prohibit such company’s proposed commercialization of a drug compound.
Certain provincial regulatory authorities in Canada have the ability to determine whether the consumers of a drug sold within such province will be reimbursed by a provincial government health plan for that drug by listing drugs on formularies. The listing or non-listing of a drug on provincial formularies may affect the prices of drugs sold within provinces and the volume of drugs sold within provinces.
Additional Regulatory Considerations
Sales of our products by our licensees outside the United States and Canada will be subject to regulatory requirements governing the testing, registration and marketing of pharmaceuticals, which vary widely from country to country.
Under the U.S. Generic Drug Enforcement Act, ANDA applicants (including officers, directors and employees) who are convicted of a crime involving dishonest or fraudulent activity (even outside the FDA regulatory context) are subject to debarment. Debarment is disqualification from submitting or participating in the submission of future ANDAs for a period of years or permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse to accept ANDAs from any company which employs or uses the services of a debarred individual. We do not believe that we receive any services from any debarred person.
In addition to the regulatory approval process, pharmaceutical companies are subject to regulations under provincial, state and federal law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and future local, provincial, state, federal and foreign regulations, including possible future regulations of the pharmaceutical industry. We believe that we are in compliance in all material respects with such regulations as are currently in effect.
Before medicinal products can be distributed commercially, a submission providing detailed information must be reviewed and approved by the applicable government or agency in the jurisdiction in which the product is to be marketed. The regulatory review and approval process varies from country to country.
C. | Organizational Structure |
The following chart shows the corporate relationship structure of Intellipharmaceutics and its fourthree wholly-owned subsidiaries, including jurisdictions of incorporation, as at May 10, 2012.February 18, 2014.
-34-
D. | Property, Plant and Equipment |
For sevennine years, we have occupied a 25,000 square foot facility at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2, that we lease at a present rental rate of approximately $95,000$90,000 per year. The lease has been renewed to November 30, 2012 and we are in discussions2014, with the landlordan option to extend the lease on comparable terms for severalfive additional years. We use our facilities as a cGLP research laboratory, office space, and cGMP scale-up and small to medium-scale manufacturing
We continually monitor our facility requirements in the context of our needs and we expect these requirements to change commensurately with our activities.
The following discussion and analysis should be read in conjunction with the audited annual consolidated financial statements of the Company and notes thereto. See “Item 18. Financial Statements.” The consolidated financial statements have been prepared in accordance with U.S. GAAP. All amounts are expressed in United States dollars unless otherwise noted. Annual references are to the Company’s fiscal years, which ended on November 30, 20112013, 2012 and 2010, and the eleven month fiscal period ended November 30, 2009.2011.
A. | Operating Results |
Our results of operations have fluctuated significantly from period to period in the past and are likely to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the timing of approvals to market our product candidates in various jurisdictions and any resulting licensing revenue, milestone revenue, product sales, the timing and amount of payments received pursuant to our current and future collaborations with third-parties,third parties, and the progress and timing of expenditures related to our research, development and commercialization efforts. Due to these fluctuations, we presently believe that the period-to-period comparisons of our operating results are not a reliable indication of our future performance.
-35-
The following are selected financial data for the years ended November 30, 20112013, 2012 and 2010, and the eleven month period ended November 30, 2009.
| For periods ended | Dollar and Percentage change | |||||||||||||||||||||||||||
November 30 2011 | November 30 2010 | November 30 2009 | 2011 vs 2010 | 2010 vs 2009 | ||||||||||||||||||||||||
| (12 Months) | (12 Months) | (11 Months) | ||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||
| Research and development | $ | 501,814 | $ | 1,459,385 | $ | 630,179 | $ | (957,571 | ) | -66 | % | $ | 829,206 | 132 | % | |||||||||||||
| Expenses | ||||||||||||||||||||||||||||
| Cost of revenue | - | - | 382,597 | - | 0 | % | (382,597 | ) | -100 | % | ||||||||||||||||||
| Research and development | 5,125,608 | 4,533,310 | 1,554,859 | 592,298 | 13 | % | 2,978,451 | 192 | % | |||||||||||||||||||
| Selling , general and administrative | 2,925,454 | 2,699,204 | 975,197 | 226,250 | 8 | % | 1,724,007 | 177 | % | |||||||||||||||||||
| Depreciation | 227,456 | 242,778 | 344,768 | (15,322 | ) | -6 | % | (101,990 | ) | -30 | % | |||||||||||||||||
| Write-down of long-lived assets | - | 36,481 | - | (36,481 | ) | -100 | % | 36,481 | - | |||||||||||||||||||
| 8,278,518 | 7,511,773 | 3,257,421 | 766,745 | 10 | % | 4,254,352 | 131 | % | ||||||||||||||||||||
| Loss from operations | (7,776,704 | ) | (6,052.388 | ) | (2,627,242 | ) | (1,724,316 | ) | 28 | % | (3,425,146 | ) | 130 | % | ||||||||||||||
| Fair value adjustment of derivative liability | 5,346,878 | 223,782 | 286,983 | 5,123,096 | 2289 | % | (63,201 | ) | -22 | % | ||||||||||||||||||
| Financing expense | (2,357,732 | ) | - | - | (2,357,732 | ) | N/A | |||||||||||||||||||||
| Net foreign exchange (loss)gain | (70,036 | ) | 138,949 | 587,642 | (208,985 | ) | -150 | % | (448,693 | ) | -76 | % | ||||||||||||||||
| Interest income | 60,790 | 27,001 | 1,822 | 33,789 | 125 | % | 25,179 | 1382 | % | |||||||||||||||||||
| Interest expense | (83,473 | ) | (98,435 | ) | (87,940 | ) | 14,962 | -15 | % | (10,495 | ) | 12 | % | |||||||||||||||
| Loss | $ | (4,880,277 | ) | $ | (5,761,091 | ) | $ | (1,838,735 | ) | $ | 880,814 | -15 | % | $ | (3,922,356 | ) | 213 | % | ||||||||||
| For years ended | Dollar and Percentage change | |||||||||||||||||||||||||||
November 30, 2013 | November 30, 2012 | November 30, 2011 | 2013 vs 2012 | 2012 vs 2011 | ||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||
| Licensing | $ | 1,481,719 | $ | - | $ | - | $ | 1,481,719 | N/A | $ | - | N/A | ||||||||||||||||
| Milestone | 43,209 | - | - | 43,209 | N/A | - | N/A | |||||||||||||||||||||
| Research and development | - | $ | 107,091 | $ | 501,814 | (107,091 | ) | -100 | % | $ | (394,723 | ) | -79 | % | ||||||||||||||
| Other incidental services | 2,546 | - | - | 2,546 | N/A | - | N/A | |||||||||||||||||||||
| 1,527,474 | 107,091 | 501,814 | 1,420,383 | 1326 | % | (394,723 | -79 | % | ||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||
| Research and development | 5,076,236 | 5,992,417 | 5,125,608 | (916,181 | ) | -15 | % | 866,809 | 17 | % | ||||||||||||||||||
| Selling, general and administrative | 2,873,091 | 3,672,313 | 2,925,454 | (799,222 | ) | -22 | % | 746,859 | 26 | % | ||||||||||||||||||
| Depreciation | 396,814 | 452,303 | 227,456 | (55,489 | ) | -12 | % | 224,847 | 99 | % | ||||||||||||||||||
| Write-down on long lived assets | - | 107,123 | - | (107,123 | ) | -100 | % | 107,123 | N/A | |||||||||||||||||||
| 8,346,141 | 10,224,156 | 8,278,518 | (1,878,015 | ) | -18 | % | 1,945,638 | 24 | % | |||||||||||||||||||
| Loss from operations | (6,818,667 | ) | (10,117,065 | ) | (7,776,704 | ) | 3,298,398 | -33 | % | (2,340,361 | ) | 30 | % | |||||||||||||||
| Fair value adjustment of derivative liabilities | (3,873,649 | ) | 3,841,233 | 5,346,878 | (7,714,882 | ) | -201 | % | (1,505,645 | ) | -28 | % | ||||||||||||||||
| Financing expense | (115,056 | ) | - | (2,357,732 | ) | (115,056 | ) | N/A | 2,357,732 | -100 | % | |||||||||||||||||
| Net foreign exchange (loss) gain | (359,554 | ) | 181,682 | (70,036 | ) | (541,236 | ) | -298 | % | 251,718 | -359 | % | ||||||||||||||||
| Interest income | 2,839 | 20,691 | 60,790 | (17,852 | ) | -86 | % | (40,099 | ) | -66 | % | |||||||||||||||||
| Interest expense | (314,896 | ) | (63,406 | ) | (83,473 | ) | (251,490 | ) | 397 | % | 20,067 | -24 | % | |||||||||||||||
| Net loss | $ | (11,478,983 | ) | $ | (6,136,865 | ) | $ | (4,880,277 | ) | $ | (5,342,118 | ) | 87 | % | $ | (1,256,588 | ) | 26 | % | |||||||||
| Loss per common share, basic and diluted | $ | (0.58 | ) | $ | (0.36 | ) | $ | (0.33 | ) | $ | (0.22 | ) | 61 | % | $ | (0.03 | ) | 9 | % | |||||||||
Year Ended November 30, 20112013 Compared to the Year Ended November 30, 20102012
Revenue
The Company recorded revenues of $501,814$1,527,474 for the year ended November 30, 20112013 versus $1,459,385$107,091 for 2010. 2012. In November 2013 the Company received FDA approval of dexmethylphenidate hydrochloride extended-release capsules for the 15 and 30 mg strengths. Commercial sales of these strengths were launched immediately by our commercialization partner in the United States, Par. As the first-filer for the drug product in the 15 mg strength, we will have 180 days of exclusivity of generic sales from the date of launch in the United States by our partner, Par. We recognized licensing revenue of $1,481,719 which is our licensing revenue from 12 days of commercial sales of 15 and 30 mg strengths of dexmethylphenidate hydrochloride extended-release capsules under the license and commercialization agreement with Par. This revenue represents the first commercial generic sales of those strengths and may not be representative of post-launch sales. In 2013 we also accrued milestone revenue of $43,209 under the Par agreement, which is tied to the achievement of our product being either the only generic in the market or if there is only one generic competitor. In 2013 we also recorded other incidental services revenue of $2,546 related to consulting services provided to other organizations regarding FDA standards.
In 2011, additional strengths of generic Focalin XR® were added to the existing developmentlicense and commercialization agreement between the Company andwith Par. Under the terms of the expanded agreement, Intellipharmaceuticsthe Company received a cash payment of $600,000 from Par, of $600,000. As atwhich $492,909 was recognized in the year ended November 30, 2011, $492,9092011. During the year ended November 30, 2012, the remaining deferred revenue of the payment$107,091 was recognized as revenue mainly related to development work completed for the 30mg40 mg strength. Included in revenue in 2010 was recognition of an upfront fee of $1,449,624 and cost reimbursements in the amount of $9,761. The 2010 upfront fee revenue recognition can be primarily attributed to a drug development agreement that was mutually terminated by us and another party as a result of which unearned revenue of approximately $1,439,000 was recognized as income.
-36-
Research and Development
Expenditures for research and development (“R&D”) for the year ended November 30, 20112013 were higher by $592,298 compared$5,076,236 in comparison to $5,992,417 in the prior year, ended November 30, 2010.a decrease of $916,181. These included spending for research and developmentR&D activities as well as expenses on stock options as detailed below.
In the year ended November 30, 2011,2013, we recorded $601,424$837,206 as expenses for stock options for R&D employees; composed of $158,624 related to stock options issued to non-executive employees involved in R&D activities, andthis amount includes $442,800 related to 276,394expense for performance-based stock options issued to Dr. Isa Odidi and Dr. Amina Odidi, the principal shareholders, officers and directors of the Company. These performance-based stock options related to services provided for R&D activities leading to an ANDA being filed. These options vest upon the achievement of certain performance criteria. Included inoptions. In the prior year is anwe recorded $1,505,061 as expenses for stock options for R&D employees; there was no expense of $885,600 relating to 552,788for performance-based stock options issued to Dr. Isa Odidi and Dr. Amina Odidi.options.
After adjusting for the stock options expenses discussed above, expenditures for research and developmentR&D for the year ended November 30, 20112013 were higherslightly lower by $876,474$248,326 compared to the prior year. This is primarily attributed to the fact that during the year ended November 30, 2011 we advanced development of several generic product candidates including two multi-strength products that2012, more R&D activities were filed as ANDAs duringconducted compared to the year and the development of a number of other pipeline product candidates. Although we had four ANDA filings in 2010, some of the development for the products had been carried out in prior periods, and fewer projects were initiated in 2010.ended November 30, 2013.
Selling, General and Administrative
Selling, general and administrative expenses were $2,925,454$2,873,091 for the year ended November 30, 20112013 in comparison to $2,699,204$3,672,313 for the year ended November 30, 2010, an increase2012, a decrease of $226,250.$799,222. The increasedecrease is due to an increasea decrease in expenses related to wages, marketing cost and benefitsoccupancy costs which are discussed in greater detail below.
Administrative costs for the year ended November 30, 20112013 were $1,537,203$1,078,441 in comparison to $1,556,087 for$1,279,696 in the prior year. There was no notable changeThe decrease is primarily due to business development expenses in administrative costs.the prior year, as well as higher expenditures in patents prosecution.
Marketing costs for the year ended November 30, 20112013 were $251,720$388,889 in comparison to $239,638 for$352,803 in the prior year. There was no notablesignificant change in marketing costs.these expenses.
Occupancy costs for the year ended November 30, 20112013 were $70,224$92,679 in comparison to $68,295 for$93,279 in the prior year. There was no notable change in occupancy costs.The decrease is due to the termination of a leased office for IPC Ltd.
Depreciation
Depreciation expenses for the year ended November 30, 2011 was $227,4562013 were $396,814 in comparison to $242,778 for$452,303 in the prior year. The decrease is primarily due to lower investment in production, laboratory and computer equipment in the year ended November 30, 2010. There was no notable change in depreciation as fixed assets additions were made late in2013 compared to the prior year.
Fair Value Adjustment of Derivative LiabilityLiabilities
-37-
Under U.S. GAAP, wherewhen the strike price of warrants is denominated in a currency other than an entity's functional currency, the warrants would not be considered indexed to the entity’s own stock. As a result, the Company determined that these warrants are not considered indexed to the Company’s own stock and therefore would consequently be considered to be derivative liability. Also under U.S. GAAP, warrants with the cashless exercise option satisfying the explicit net settlement criteria are considered a derivative liability.
In January 2013, the Company completed the private placement financing of an unsecured convertible debenture (the “Debenture”) in the aggregate principal amount of $1.5 million. The Debenture will mature January 1, 2015, bears interest at a rate of 12% per annum, payable monthly, is pre-payable at any time at the option of the Company, and is convertible at any time into 500,000 common shares at a conversion price of $3.00 per common share at the option of the holder. The conversion price of the Debenture is in U.S. dollars and the Company’s functional currency is Canadian dollars. Under U.S. GAAP, when the conversion price of the Debenture is denominated in a currency other than an entity's functional currency, the conversion option meets the definition of an embedded derivative. The conversion option is bifurcated from its host contract and the fair value of the conversion option characterized as an embedded derivative upon issuance. The embedded derivative is presented on a combined basis with the host contract. The derivative is re-measured at the end of every reporting period with the change in value reported in the consolidated statements of operations and comprehensive loss.
U.S. GAAP requires the fair value of these liabilities be re-valued at the end of every reporting period with the change in value reported in the statementconsolidated statements of operations.operations and comprehensive loss. Accordingly, the fair valuevalues of the warrant derivative liabilityliabilities from the IPC Arrangement Agreement, the Series A, Placement Agents, March 2013 and July 2013 Warrants, and conversion option embedded derivative from the Series B and the placement agents’ warrantsDebenture have been re-valued at November 30, 20112013 using the Black-Scholes OptionsOption Pricing Model, resulting in a decreasean increase in the fair value of the warrant derivative liabilityliabilities and a fair value adjustment of the derivative liabilities for $5,346,878.a loss of $3,889,683.
Financing Expense
Financing expense was $115,056 for the year ended November 30, 20112013 compared to $Nil for the prior year. This expense was $2,357,732 related to the private placement financingMarch 2013 registered direct unit offering for gross proceeds of $12,000,000$3.1 million and the July 2013 underwritten public offering of units for gross proceeds of $3.1 million. These costs were expensed as they were attributable to the warrant liability. In March 2012 the Company closed a related registration statement.registered direct common share offering for gross proceeds of $5 million; for this financing the costs were recorded in shareholder equity.
Foreign Exchange Loss
Foreign exchange loss was $70,036$359,554 for the year ended November 30, 2013 in comparison to a gain of $181,682 for the prior year. The foreign exchange loss for the year ended November 30, 2013 was due to the weakening of the Canadian dollar against the U.S. dollar throughout the year as the exchange rate averaged $1.00 for C$1.0241 compared to $1.00 for C$0.9977 for prior year. Based on year end dates, the Canadian dollar weakened against the U.S. dollar as the exchange rates changed to $1.00 for C$1.0620 at November 30, 2013 from $1.00 for C$0.9936 at November 30, 2012.
-38-
Interest Income
Interest income was $2,839 for the year ended November 30, 2013 in comparison to $20,691 for the year ended November 30, 2012, a decrease of $17,852. The current year interest was lower largely due to a lower average amount of cash equivalents on hand during 2013.
Interest Expense
Interest expense was $314,896 for the year ended November 30, 2013 in comparison to $63,406 for the year ended November 30, 2012, an increase of $251,490. On January 10, 2013 we issued the $1,500,000 Debenture, which accrues interest payable at 12% annually. Also, the Debenture proceeds of $1.5 million less the initial fair value of the conversion option embedded derivative of $220,100, amounts to $1,279,900 and are accreted at an annual imputed interest rate of 8%, over the life of the Debenture. We also continue to have another related party loan outstanding which accrues interest at 6% annually during 2013 and 2012.
Net Loss
The Company recorded a net loss for the year ended November 30, 2013 of $11,495,017 or $0.58 per common share, compared with a loss of $6,136,865 or $0.36 per common share for the year ended November 30, 2012. The increased loss can be attributed to the loss in the fair value adjustment of derivative liabilities compared to a gain in the fair value adjustment of derivative liabilities in the prior year. This was partially offset by a decrease in R&D and selling, general and administrative expenses in the year ended November 30, 2013 compared to the prior year. Stock-based compensation expense in the year ended November 30, 2013 was $1,153,882 versus $2,323,845 in the prior year. The fair value adjustment of derivative liabilities in the year ended November 30, 2013 was a loss of $3,889,683 versus a gain of $3,841,233 in the prior year. The fair values of the derivative liabilities have been re-valued at November 30, 2013 using the Black-Scholes Option Pricing Model, resulting in an increase in the fair value of the derivative liabilities and a fair value adjustment of the derivative liabilities for a loss.
Year Ended November 30, 2012 Compared to the Year Ended November 30, 2011
Revenue
The Company recorded revenues of $107,091 for the year ended November 30, 2012 versus $501,814 for 2011. In the prior year additional strengths of generic Focalin XR® were added to the existing license and commercialization agreement with Par. Under the terms of the expanded agreement, the Company received a cash payment of $600,000 from Par, of which $492,909 was recognized in the year ended November 30, 2011. During the year ended November 30, 2012, the remaining deferred revenue of $107,091 was recognized as revenue mainly related to development work completed for the 40 mg strength.
Research and Development
Expenditures for R&D for the year ended November 30, 2012 were $5,992,417 in comparison to $5,125,608 in the prior year, an increase of $866,809. These included spending for R&D activities as well as expenses on stock options as detailed below.
In the year ended November 30, 2012, we recorded $1,505,061 as expenses for stock options for R&D employees; there was no expense for performance-based stock options. In the prior year we recorded $601,424 as expenses for stock options for R&D employees; composed of $158,624 related to stock options issued to non-executive employees involved in R&D activities, and $442,800 related to 276,394 performance-based stock options issued to Dr. Isa Odidi and Dr. Amina Odidi, principal shareholders, directors and executive officers of the Company. We recorded these expenses as we determined it was probable as at November 30, 2011 we would satisfy the performance criteria that will allow vesting of the options.
After adjusting for the stock options expenses discussed above, expenditures for R&D for the year ended November 30, 2012 were slightly lower by $36,829 compared to the prior year.
-39-
Selling, General and Administrative
Selling, general and administrative expenses were $3,672,313 for the year ended November 30, 2012 in comparison to $2,925,454 for the year ended November 30, 2011, an increase of $746,859. The increase was due to an increase in expenses related to wages, marketing cost and occupancy costs which are discussed in greater detail below.
Expenditure for wages and benefits for the year ended November 30, 2012 were $1,946,535 in comparison to $1,066,307 in the prior year. This increase was attributable to the issuance of options. In the year ended November 30, 2012, we recorded $855,511 as expenses for stock options compared to an expense of Nil for the prior year. After adjusting for the stock options expenses, expenditures for wages and benefits for the year ended November 30, 2012 were slightly higher by $24,717 compared to the prior period.
Administrative costs for the year ended November 30, 2012 were $1,279,696 in comparison to $1,537,203 in the prior year. The decrease was primarily due to a decrease in legal and accounting costs for year end regulatory filings from the prior year. The decrease was partially offset by higher business development consulting costs for a period of 12 months for the year ended November 30, 2012 compared to only ten months in the prior year.
Marketing costs for the year ended November 30, 2012 were $352,803 in comparison to $251,720 in the prior year. This increase was primarily the result of an increase in travel expenditures for business development activities and the retention of an investor relations firm.
Occupancy costs for the year ended November 30, 2012 were $93,279 in comparison to $70,224 in the prior year. The increase was due to higher utilities and a new leased office for IPC Ltd.
Depreciation
Depreciation expenses for the year ended November 30, 2012 were $452,303 in comparison to $227,456 in the prior year. The increase was primarily due to the additional investment in production, laboratory and computer equipment.
Fair Value Adjustment of Derivative Liabilities
On February 1, 2011 the Company completed a private offering for the sale of 4,800,000 units of the Company, each unit consisting of one share of common stock, a five year Series A common share purchase warrant to purchase one half of a share of common stock at an exercise price of $2.50 per whole share and a two year Series B common share purchase warrant to purchase one half of a share of common stock at an exercise price of $2.50 per whole share. The Company also issued to the placement agents 96,000 warrants to purchase a whole share of common stock at an exercise price of $3.125 per whole share.
Under U.S. GAAP, where the strike price of warrants is denominated in a currency other than an entity's functional currency, the warrants would not be considered indexed to the entity’s own stock. As a result, the Company determined that these warrants are not considered indexed to the Company’s own stock and therefore would consequently be considered to be a derivative liability. Also under U.S. GAAP, warrants with the cashless exercise option satisfying the explicit net settlement criteria are considered a derivative liability.
U.S. GAAP requires the fair value of these liabilities be re-valued at the end of every reporting period with the change in value reported in the statement of operations. Accordingly, the fair value of the warrant derivative liability from the IPC Arrangement Agreement, the Series A, the Series B and the placement agents’ warrants have been re-valued at November 30, 2012 using the Black-Scholes Options Pricing Model, resulting in a decrease in the fair value of the derivative liabilities and a fair value adjustment of the derivative liabilities for a gain of $3,841,233.
Financing Expense
Financing expense was $Nil for the year ended November 30, 2012 compared to $2,357,732 for the prior year. On March 15, 2012 the Company closed a registered direct common share offering for gross proceeds of $5 million; for this financing the costs were recorded in shareholder equity. For the year ended November 30, 2011, financing expense included other direct costs related to the registration statement filed as part of the February 1, 2011 private placement financing for gross proceeds of $12,000,000. These costs were expensed as they were attributable to the warrant liability.
-40-
Foreign Exchange Gain
Foreign exchange gain was $181,682 for the year ended November 30, 2012 in comparison to a gainloss of $138,949 in$70,036 for the prior year. The foreign exchange gain for the year ended November 30, 2012 was due to the weakening of the Canadian dollar against the U.S. dollar throughout the year as the exchange rate averaged $1.00 for C$0.9977 compared to $1.00 for C$0.9879 for prior year. Based on year end dates, the Canadian dollar strengthened against the U.S. dollar as the exchange rates changed to $1.00 for C$0.9936 at November 30, 2012 from $1.00 for C$1.0203 at November 30, 2011.
The loss for the year ended November 30, 2011, was due to the strength of the Canadian dollar during the year ended November 30, 2011 as the exchange rate averaged $1.00 (U.S.) for $0.9879 (Cdn)C$0.9879 compared to $1.00 (U.S.) for $1.0345 (Cdn)C$1.0345 for the year ended November 30, 2010.prior year. During 2011 most of our cash was held in U.S. dollars. Based on on year end dates, the Canadian dollar modestly strengthened against the U.S. dollar as the rates changed to $1.00 (U.S.) for $1.0203 (Cdn)C$1.0203 at November 30, 2011 from $1.00 (U.S.) for $1.0266 (Cdn)C$1.0266 at November 30, 2010. The foreign exchange gain of $138,949 for the year ended November 30, 2010, was because most of our cash was being held in Canadian dollars, the exchange rate average of $1.00(U.S.) for $1.0345(Cdn), and based on year end dates the Canadian dollar strengthened against the U.S. dollar as the rates changed to $1.00 (U.S.) for $1.0266 (Cdn) at November 30, 2010 from $1.00 (U.S.) for $1.0556 (Cdn) at November 30, 2009.
Interest Income
Interest income was $20,691 for the year ended November 30, 2012 in comparison to $60,790 for the year ended November 30, 2011, a decrease of $40,099. The interest income in the year ended November 30, 2012 was higher in comparison to the prior year, primarily because interest was higherlower largely due to a higherlower average amount of cash equivalents on hand during 2011 largely due to the net proceeds of $10.5 million from the issuance of shares and warrants from the private placement completed on February 1, 2011.2012.
Interest Expense
Interest expense was $63,406 for the year ended November 30, 2012 in comparison to $83,473 for the year ended November 30, 2011, was lower compared with the prior year, primarily because the averagea decrease of $20,067. The amount outstanding due toon a related party loan which accrues interest at 6% annually was lower during 2011in the year ended November 30, 2012 in comparison to 2010.the prior year.
The Company recorded revenues of $1,459,385a net loss for the year ended November 30, 2010 versus $630,179 for the eleven month period ended November 30, 2009. Revenue in 2010 was comprised2012 of recognition$6,136,865, or $0.36 per common share, compared with a loss of upfront fee of $1,449,624 and cost reimbursements in the amount of $9,761. Included in revenue in the eleven month period ended November 30, 2009 was recognition of upfront fees of $480,655, research and development service fees of $144,295 and cost reimbursements in the amount of $5,229. The increase in revenue can be primarily attributed to a drug development agreement that has been mutually terminated by us and another party as a result of which unearned revenue of approximately $1,439,000 was recognized as income. Revenue from research and development service fees decreased during the period primarily because the Company had no late stage development activity on partnered projects in 2010, compared to 2009 when the Company was more actively involved in such activities on partnered projects. As discussed above it is our current strategy to advance our products from the formulation stage through product development, regulatory approval and manufacturing before we out-license the marketing and sales to established organizations. We believe that this full integration of development and manufacturing should help us to reach our goal to maximize the value inherent in our technologies and product candidates and will help us to create long term growth and value. As a result we had minimal revenue from partnered projects as our focus was on advancing our own pipeline. The Company currently does not have any significant customers.
Restatement of Comparative Amounts
For the years ended November 30, 2009,2012 and 2011, we previously classified the issuance of common shares as a credit to additional paid in capital. In accordance with U.S. GAAP, shares issued with no par value are required to be classified under capital stock. The adjustment is a reclassification from additional paid in capital into capital stock and has an increaseimmaterial impact on the consolidated statement of $1,724,007. The increase is dueshareholder’s deficiency. Items previously reported have been reclassified to an increase in expenses relatedconform to legal fees, wages, marketing costsU.S. GAAP and occupancy costs which are discussed in greater detail below.did not have any impact on the Company’s earnings per share calculations.
B. | Liquidity and Capital Resources |
The Company had cash and cash equivalents of $4,817,088$760,586 as at November 30, 20112013 compared to $789,136$497,016 as at November 30, 2010,2012, and compared to $8,014,492$4,817,088 at November 30, 2009.2011. The increase in cash during the year ended November 30, 2013 is mainly a result of an increase in financing activities, partially offset by a decrease in cash flows used in operating activities related to R&D activities, and the decrease in purchases of production, laboratory and computer equipment, as noted below. The decrease in cash during the year ended November 30, 2012 is mainly a result of cash flows used in operating activities related to R&D activities and the purchase of production, laboratory and computer equipment due to the acceleration of product development activities, as noted below. The increase in cash during the year ended November 30, 2011 is mainly a result of cash flows from financing activities, as noted below. The decrease in cash during the year ended November 30, 2010 is mainly a result of cash used in operating activities and the repayment of C$910,000 due to a related party.
For the year ended November 30, 20112013, net cash flows used in operating activities increased,decreased to $6,926,796 as compared to net$7,654,361 and $6,981,448 for the years ended November 30, 2012 and 2011, respectively. The November 30, 2013 decrease was due to lower cash expenditures in R&D activities as well as for selling, general and administrative activities. The November 30, 2012 increase in cash flows used in operating activities for the years ended November 30, 2010 and 2009. This increase is a result of higher expenditures in research and development activities and selling, general and administrative expenses during the year endedcompared to November 30, 2011 as described in greater detail incan be attributed to the Operating Results. These amounts in the year ended November 30, 2011 were partially offset by aperiods’ cash paymentreceipt of $0.6 million$600,000 from Par based on the terms of the expanded agreement for development and commercialization of Focalin XR® generics, and C$1,188,668 of ITCs received from the Canada Revenue Agency (“CRA”) and the Ontario Ministry of Finance (“OMF”), of investment tax credits (“ITCs”) for research and development activities described more fully below.
As a research and development company, Intellipharmaceutics Corp., a wholly-owned subsidiary of the Company (“IPC Corp.Corp”) is eligible to receive ITCs from various levels of government under the Scientific Research & Experimental DevelopmentSR&ED incentive programs. Depending on the financial condition of IPC Corp.,Corp, research and development expenses in any fiscal year could be claimed. Eligible research and development expenses included salaries for employees involved in research and development, cost of materials, equipment purchase as well as third party contract services. This amount is not a reduction in income taxes but a form of government refundable credits based on the level of research and development that the Company carries out.
In fiscal year 2013 and 2012, the Company received C$300,000 in each year for the ITCs with the OMF for research and development activities carried out during the fiscal years 2012 and 2011, respectively.
In fiscal year 2011, the Company received C$640,081 from the CRA and the OMF comprised of ITCs for research and development activities carried out to the period ended October 21, 2009. The Company received another refund of C$207,370 for the ITC with the OMF for research and development activities carried out during the fiscal year 2010. Finally, the Company also received C$341,217 in other tax credits receivable that were acquired in the October 22, 2009 IPC Arrangement Agreement. Subsequent to the IPC Arrangement, the Company is no longer a Canadian-controlled private corporation, reducing the amounts that we would otherwise be eligible for. Realization of these credits is subject to government approval.
For the CRA and the OMF being payments of claims for scientific research & experimental development tax credit and an Ontario Innovation Tax Credit in respect of research and development activities carried out by IPC Ltd. during the fiscal year 2008. The fluctuations inended November 30, 2012, net cash flows provided from operations are influencedfinancing activities of $4,363,865 related principally to the registered direct common share offering for gross proceeds of $5 million completed in March 2012, and several warrant exercises, partially offset by our net loss. We had net losses of $4,880,277 in 2011, as compared to net losses of $5,761,091 and $1,838,735 in 2010 and 2009, respectively.issuance costs.
-42-
For the year ended November 30, 2011, net cash flows provided from financing activities relateof $11,269,162 related mainly to the gross proceeds of $12,000,000 from the issuance of shares and warrants from the private placement completed on February 1, 2011. This cash flow provided from financing activities was partially offset by the repayment of $801,551 (C$817,822) for a related party loan payable to Dr. Isa Odidi and Dr. Amina Odidi, principal stockholders, directors and executive officers of Intellipharmaceutics, for cash advances made by them to us as a shareholder loan, in accordance with the terms of the loan. This repayment was not sourced from the gross proceeds of the private placement. See Relatedthe next paragraph and Item 7.B “Related Party TransactionsTransactions” below for repayment restrictions. For the year ended November 30, 2010 net cash flows used in financing activities related mainly to the repayment
Repayments of the related party loan payable to Dr.
For the year ended November 30, 20112013, net cash flows used in investing activities relateof $122,017 related mainly to the purchasea decrease in purchases of production and laboratory equipment as compared with the year ended November 30, 2012. For the year ended November 30, 2012, net cash flows used in investing activities of $1,036,092 related mainly to purchases of production, laboratory and computer equipment due to the acceleration of product development activities. For the year ended November 30, 20102011, net cash flows used in investing activities of $262,142 related mainly to the deliverypurchases of production and qualification of our primary manufacturinglaboratory equipment for the manufacture of an abuse-deterrent formulation of controlled-release oxycodone hydrochloride. For the eleven months ended November 30, 2009 net cash flows provided from investing activities relate mainlydue to the transactions described in the “Business Overview”, effective October 22, 2009 which resulted in the receiptacceleration of $11.0 million in cash and an additional $0.5 million of receivables from tax credits recoverable.product development activities.
All non-cash items have been eliminated from the consolidated statements of cash flows.
The Company has not been profitable and has incurred losses from operations since inception. The Company has funded its research and development activities principally through the issuance of capital stock,securities, loans from related parties, funds from the IPC Arrangement Agreement and funds received under development agreements. Currently, the Company does not anticipate generating sufficient cash flows from operations as it pursues the development of a portfolio of ANDA and NDA 505(b)(2) NDA products. Our future operations are highly dependent upon our ability to raise additional capital to support advancing our product pipeline through continued research and development activities. On February 1, 2011Although there can be no assurances, such financing may come from revenues from proceeds of the Company’s at-the-market offering program, and from sales of our dexmethylphenidate hydrochloride extended-release products. Our ultimate success will depend on whether our product candidates receive the approval of the FDA or other applicable regulatory agencies and we are able to successfully market approved products. We cannot be certain that we will be able to receive FDA approval for any of our current or future product candidates, or that we will reach the level of sales and revenues necessary to achieve and sustain profitability.
-43-
In July 2013, the Company completed an underwritten public offering for gross proceeds of approximately $3.1 million as described above. In March 2013, the Company completed a private placement financing to institutional investorsregistered direct unit offering for gross proceeds of $12,000,000 throughapproximately $3.1 million as described above. In January 2013, the saleCompany completed the Debenture financing in the aggregate principal amount of its common stock and warrants to support product pipeline development. Financing expense of $2,357,732 is comprised of the issuance of broker warrants valued at $229,005, the excess of the fair value of the warrant liability over the financing proceeds of $655,582, and $1,473,145 of other direct costs related to the financing. On$1.5 million described elsewhere herein. In March 15, 2012, the Company completed a registered direct common share offering for gross proceeds of approximately $5 million. The Company sold an aggregatemillion as described above.
On November 18, 2013, the FDA granted us final approval to market our once daily generic dexmethylphenidate hydrochloride extended-release capsules for the 15 and 30 mg strengths. Commercial sales of 1,818,182 sharesthese strengths were launched immediately by our commercialization partner in the United States, Par. Our 5, 10, 20 and 40 mg strengths were also tentatively FDA approved, subject to U.S. institutional investors at a pricethe right of $2.75 per share. After placement agent fees and estimated offering expenses, the Company received net proceedsanother party or parties to 180 days of generic exclusivity from the offeringdate of approximately $4.4 million.first launch of such products by such parties. We believe that Par intends to launch these strengths immediately upon the expiry of those exclusivity periods, but there can be no assurance as to when or if any launch will occur. There can be no assurance as to when or if final FDA approval will be received for the remaining product strengths we have applied for or that any of these strengths tentatively approved will ever be successfully commercialized. We depend significantly on the actions of our development partner Par in the prosecution, regulatory approval and commercialization of our generic dexmethylphenidate hydrochloride extended-release products and on their timely payment to us of the contracted quarterly payments as they come due. Our near term ability to generate significant revenue will depend upon successful commercialization of this product in the United States, where the branded Focalin XR® product is in the market. Although we have several other products in our pipeline, they are at earlier stages of development.
terms favorable to us or at all, may require us to significantly change or curtail our current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in our not taking advantage of business opportunities, in the termination or delay of clinical trials for one or more of our product candidates, in curtailment of our product development programs designed to identify new product candidates, in the sale or assignment of rights to our technologies, products or product candidates, and/or our inability to file ANDAs or NDAs at all or in time to competitively market our products or product candidates.
C. | Research and development, patents, and licenses, etc. |
We expense R&D costs. For the years ended November 30, 2013, 2012 and 2011, R&D expense was $5,076,236, $5,992,417 and 2010, and the eleven month period ended November 30, 2009, we spent a total of $5,125,608, $4,533,310 and $1,554,859, respectively, on research and development.respectively.
D. | Trend Information |
It is important to note that historical patterns of expenditures cannot be taken as an indication of future expenditures. Net income and loss has been variable over the last three yearseight quarters, and is impacted primarily by the availability of funding, the level of our researchR&D spending, and development spending, the fair value adjustment of derivative liability, andliabilities. The higher loss during the recognitionfourth quarter of revenue in drug development agreements. The Company’s reduced net2013 when compared to the loss in the year ended November 30, 2011,third quarter of 2013 can be mainly attributed to a $5.3 million fair value adjustment of the derivative liability. The fair value of these liabilities is re-measured at the end of every reporting period using the Black-Scholes Options Pricing Model. The Company’s net income in the fiscal quarter ended August 31, 2011, can be attributed to the $0.5 million in revenue received for the expanded agreement between the Company and Par for the development and commercialization of Focalin XR® generics, as well as the fair value adjustment of derivative liabilities for a loss of $5.1 million due to the significant increase in common share price driving the fair market valuation of derivative liabilityliabilities. This was partially offset by the timing of certain R&D activities which have been deferred, and licensing revenue of $1.5 million related to commercial sales of dexmethylphenidate hydrochloride extended-release capsules for $2.5 million.the 15 and 30 mg strengths under the license and commercialization agreement with Par. This revenue represents the first commercial generic sales of those strengths and may not be representative of post-launch sales. The significant decreaseincrease in the Company'sCompany’s net loss duringfor the third quarter ended August 31, 2013, as compared to the Company’s net loss for the second quarter ended May 31, 2010,2013, can be mainly attributed to the loss of $0.2 million in the fair value adjustment of derivative liabilities. In contrast, for the second quarter ended May 31, 2013, there was a drug development agreement that was mutually terminated by Intellipharmaceutics and another party and as a result, unearned revenuegain of approximately $1.4$0.2 million was recognized as income.in the fair value adjustment of derivative liabilities.
-44-
The following selected financial information is derived from our unaudited interim consolidated financial statements.
| Quarter Ended | Revenues | Net income (loss) | Income (loss) per share | ||
| Basic | Diluted | ||||
| $ | $ | $ | $ | ||
| November 30, 2011 | - | (1,285,132) | (0.09) | (0.09) | |
| August 31, 2011 | 501,814 | 1,097,131 | 0.07 | 0.05 | |
| May 31, 2011 | - | (1,968,783) | (0.12) | (0.12) | |
| February 28, 2011 | - | (2,723,493) | (0.22) | (0.22) | |
| November 30, 2010 | 7,164 | (1,903,629) | (0.18) | (0.18) | |
| August 31, 2010 | - | (2,113,462) | (0.19) | (0.19) | |
| May 31, 2010 | 1,449,624 | (316,447) | (0.03) | (0.03) | |
| February 28, 2010 | 2,597 | (1,427,553) | (0.13) | (0.13) | |
| November 30, 2009 | (2 Months) | 161,757 | (875,322) | (0.09) | (0.09) |
| September 30, 2009 | 125,590 | (165,739) | (0.02) | (0.02) | |
| June 30, 2009 | 118,460 | (224,662) | (0.02) | (0.02) | |
| March 31, 2009 | 224,372 | (573,012) | (0.06) | (0.06) | |
| Quarter Ended | Revenues | Net income (loss) | Income (loss) per share | |||||||||||||
| Basic | Diluted | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| November 30, 2013 | 1,527,474 | (6,309,405 | ) | (0.30 | ) | (0.30 | ) | |||||||||
| August 31, 2013 | - | (2,047,783 | ) | (0.10 | ) | (0.10 | ) | |||||||||
| May 31, 2013 | - | (1,781,662 | ) | (0.09 | ) | (0.09 | ) | |||||||||
| February 29, 2013 | - | (1,340,133 | ) | (0.07 | ) | (0.07 | ) | |||||||||
| November 30, 2012 | - | (1,346,735 | ) | (0.08 | ) | (0.08 | ) | |||||||||
| August 31, 2012 | - | (1,458,238 | ) | (0.08 | ) | (0.08 | ) | |||||||||
| May 31, 2012 | - | (1,357,843 | ) | (0.08 | ) | (0.08 | ) | |||||||||
| February 29, 2012 | 107,091 | (1,936,519 | ) | (0.12 | ) | (0.12 | ) | |||||||||
E. | Off-balance sheet arrangements |
The Company, as part of its ongoing business, does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities (“SPE”SPE”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of November 30, 2011,2013, the Company was not involved in any material unconsolidated SPE transactions.
F. |
In the table below, we set forth our enforceable and legally binding obligations and future commitments and obligations related to all contracts. Some of the figures we include in this table are based on Management’smanagement’s estimate and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. The Company has entered into capital lease agreements for laboratory equipment where the lease obligation will end in fiscal 2014. Operating lease obligations related to the lease of premises will expire in November 2012.2014, with an option to extend the lease on comparable terms for five additional years.
| Payments Due by Period | |||||
| Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 4-5 Years | After 5 Years |
| Capital Lease Obligations | $ 138,589 | $ 43,382 | $ 95,207 | $ --- | $ --- |
| Operating Lease Obligations | 95,188 | 95,188 | --- | --- | --- |
| Total Contractual Obligations | $ 233,777 | $ 138,570 | $ 95,207 | $ --- | $ --- |
-45-
Payments Due by Period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | |||||||||||||||
| Third parties | ||||||||||||||||||||
| Accounts payable | $ | 810,381 | $ | 810,381 | $ | - | $ | - | $ | - | ||||||||||
| Capital lease | 43,264 | 43,264 | - | - | - | |||||||||||||||
| Operating lease | 84,356 | 84,356 | - | - | - | |||||||||||||||
| Related parties | ||||||||||||||||||||
| Employee costs payable | 508,616 | 508,616 | - | - | - | |||||||||||||||
| Due to related parties | 759,564 | 759,564 | - | - | - | |||||||||||||||
| Convertible debenture | 1,694,661 | 178,891 | 1,515,770 | - | - | |||||||||||||||
| $ | 3,900,842 | $ | 2,385,072 | $ | 1,515,770 | $ | - | $ | - | |||||||||||
G. | Safe Harbor |
See “Disclosure Regarding Forward-Looking Information” in the introduction to this annual report.
A. | Directors and Senior Management |
DIRECTORS AND OFFICERS
The name and province/state of residence of each of our directors and officers as at the date hereof, the office presently held, principal occupation, and the year each director first became a director of the Company or its predecessor, IPC Ltd., are set out below. Each director is elected to serve until the next annual meeting of our shareholders or until his or her successor is elected or appointed. Officers are appointed annually and serve at the discretion of the board of directors (the “Board”).
Name and Province of Residence | Position held with the Company | Principal Occupations | Other Public Company Boards | Director Since |
Dr. Isa Odidi Ontario, Canada | Chairman of the Board and Chief Executive Officer of the Company | Officer of the Company | None | September 2004 |
Dr. Amina Odidi Ontario, Canada | President, Chief Operating Officer and Director of the Company | Officer of the Company | None | September 2004 |
John Allport (2) Ontario, Canada | Vice-President, Legal Affairs and Licensing and Director of the Company | Officer of the Company | None | September 2004 |
Name and Province of Residence | Position held with the Company | Principal During the Last 5 Years | Other Public Company Boards | Director Since |
Dr. Eldon R. Smith (1) (2) Alberta, Canada | Director of the Company | President and CEO of Eldon R. Smith and Associates Ltd., a consulting business, and Professor Emeritus at the University of Calgary, Faculty of Medicine | Aston Hill Financial; Canadian Natural Resources Limited; Resverlogix Corp. | October 2009 |
Bahadur Madhani (1) Ontario, Canada | Director of the Company | None | March 2006 | |
Kenneth Keirstead (1)(2) New Brunswick, Canada | Director of the Company | Executive Manager of Lyceum Group, a consulting business. | None | January 2006 |
Dr. Patrick Yat Ontario, Canada | Vice-President, Pharmaceutical Analysis and Chemistry of the Company | Officer of the Company | None | N/A |
Shameze Rampertab Ontario, Canada | Vice President, Finance and Chief Financial Officer of the Company | Officer of the Company since November 2010; Partner, Healthcare Investment Banking at Loewen Ondaatje McCutcheon Limited from June 2008 to November 2010. | N/A |
Notes:
| (1) | Member of the Audit Committee and Compensation Committees. |
| (2) | Member of the Corporate Governance Committee. |
Each of the foregoing individuals has been engaged in the principal occupation set forth opposite his or her name during the past five years or in a similar capacity with a predecessor organization except for: (i) Shameze Rampertab, who prior to November 2010 was Partner, Healthcare Investment Banking at Loewen, Ondaatje, McCutcheon Ltd. since June 2008.
As of November 30, 2011,February 18, 2014, the directors and executive officers of the Company as a group beneficially own,owned, directly orand indirectly, or exercise control or direction over 6,162,6866,166,647 common shares, representing approximately 39%27.0% of the issued and outstanding common shares of the Company.Company (and beneficially owned approximately 9,721,678 common shares representing 42.6% of our common shares including common shares issuable upon the exercise of outstanding options and the conversion of the outstanding convertible debenture that are exercisable or convertible within 60 days of the date hereof). Our principal shareholders, Drs. Amina and Isa Odidi, our President and Chief Operating Officer and our Chairman and Chief Executive Officer, respectively, and Odidi Holdings Inc., a privately-held company controlled by Drs. Amina and Isa Odidi, owned in the aggregate directly and indirectly 5,997,751 common shares, representing approximately 26.3% of our issued and outstanding common shares of the Company (and collectively beneficially owned in the aggregate approximately 8,906,115 common shares representing 34.6% of our common shares including common shares issuable upon the exercise of outstanding options and the conversion of the outstanding convertible debenture that are exercisable or convertible within 60 days of the date hereof). (Reference is made to the section entitled “E. Share Ownership” under this “Item 6. Directors, Senior Management and Employees” for additional information regarding the options to purchase common shares held by directors and officers of the Company and the convertible debenture held by Drs. Amina and Isa Odidi.) As a result, the principal shareholders will have the ability to exercise significant influence over all matters submitted to our shareholders for approval whether subject to approval by a majority of holders of our common shares or subject to a class vote or special resolution requiring the approval of 66⅔% of the votes cast by holders of our common shares, in person or by proxy.
-47-
On June 25, 2004, Mr. Keirstead filed a voluntary assignment in bankruptcy and was issued a discharge on September 23, 2006.
Drs. Isa Odidi and Amina Odidi are spouses to each other.
B. | Compensation |
Compensation Discussion and Analysis
Background– The Company is a pharmaceutical company specializing in the research, development and manufacture of controllednovel and targeted once-a-day novelgeneric controlled-release and targeted-release oral solid dose drugs. The Company’s patented Hypermatrix™ technologies aretechnology is a multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a wide range of existing and new pharmaceuticals. Based on this technology platform, the Company has developed several drug delivery systems and a pipeline of products (our dexmethylphenidate hydrochloride extended-release capsules for the 15 and 30 mg strengths which recently received final FDA approval) and product candidates in various stages of development, including ANDAs filed with the FDA in therapeutic areas that include neurology, cardiovascular, gastrointestinal tract, diabetes pain and infection.pain. Several of these products are partnered. As of November 30, 2011,2013, the Company had 3638 full-time employees engaged in administration and research and development.
Compensation Governance - The Company’s Compensation Committee is comprised of three directors, Messrs. Madhani, Keirstead and Smith, each of whom is considered “independent” within the meaning of section 2.4 of Form 51-102F6 – Statement of Executive Compensation. Each member of the Compensation Committee has sufficient experience in order to make decisions on the suitability of the Company’s compensation policies and practices.
The Compensation Committee recommends compensation policies concerning officers and senior management to the Board. The Corporate Governance Committee recommends compensation policies concerning independent directors to the Board. The Board makes the final determinations regarding the adequacy and form of the compensation for non-executive directors to ensure that such compensation realistically reflects the responsibilities and risks involved, without compromising a director’s independence. Further details relating to the role and function of the Compensation Committee and the Corporate Governance Committee is provided in Item 6.C.
Risk Management - The Board is responsible for identifying the principal risks of the Company’s business and ensuring the implementation of appropriate systems to manage these risks. Through the Compensation Committee, the Board is involved in the design of compensation policies to meet the specific compensation objectives discussed below and considers the risks relating to such policies, if any. The Compensation Committee is ultimately responsible for ensuring compliance of the compensation policies and practices of the Company. To date, the Board and Compensation Committee have not identified any risks arising from the Company’s compensation policies and practices that would be reasonably likely to have a material adverse effect on the Company.
Objectives - The overall objectives of the Company’s compensation program include: (a) attracting and retaining talented executive officers; (b) aligning the interests of those executive officers with those of the Company; and (c) linking individual executive officer compensation to the performance of the Company. The Company’s compensation program is currently designed to compensate executive officers for performance of their duties and to reward certain executive officers for performance relative to certain milestones.milestones applicable to their services.
-48-
Elements of Compensation - The elements of compensation awarded to, earned by, paid to, or payable to the Named Executive Officers (as hereinafter defined) for the most recently completed financial year are: (a) base salary and discretionary bonuses; (b) long-term incentives in the form of stock options; (c) restricted and deferred share unit awards; and (d) perquisites and personal benefits. Prior to the most recently completed financial year, the Named Executive Officers have also received option-based awards which were assumed by the Company pursuant to the IPC Arrangement Agreementplan of arrangement completed on October 22, 2009.
Base Salary - Base salary is a fixed element of compensation payable to each Named Executive Officer for performing his or her position’s specific duties. The amount of base salary for a Named Executive Officer has been determined through negotiation of an employment agreement with each Named Executive Officer (see “Employment Agreements” below). While base salary is intended to fit into the Company’s overall compensation objectives by serving to attract and retain talented executive officers, the size of the Company and the nature and stage of its business also impact the level of base salary. To date, the level of base salary has not impacted the Company’s decisions about any other element of compensation.
Option-Based Awards - Option-based awards are a variable element of compensation that rewardrewards each Named Executive Officer for individual and corporate performance overall determined by the Board. Option-based awards are intended to fit into the Company’s overall compensation objectives by aligning the interests of theall Named Executive Officers with those of the Company, and linking individual Named Executive Officer compensation to the performance of the Company. The Board, which includes twothree of the threefive Named Executive Officers, is responsible for setting and amending any equity incentive plan under which an option-based award is granted.
The Company has in place a stock option plan (the “Option Plan”) for the benefit of certain officers, directors, employees and consultants of the Company, including the Named Executive Officers (as described in greater detail in Item 6.E. Certain6.E below). Named Executive Officers have been issued options under such plan. The Company has also granted performance-based options to Dr. Isa Odidi and Dr. Amina Odidi pursuant to a separate option agreement, which was negotiated at the same time as their employment agreements. These options vest upon the Company attaining certain milestones relating to FDA filings and approvals for Company drugs, such that 276,394 options vest in connection with each of the FDA filings for the first five Company drugs and 276,394 options vest in connection with each of the FDA approvals for the first five Company drugs.
The Company’s Option Plan was adopted effective October 22, 2009 as part of the IPC Arrangement Agreement approved by the shareholders of IPC Ltd., the predecessor company, at the meeting of shareholders on October 19, 2009. Subject to the requirements of the Option Plan, the Board, with the assistance of the Compensation Committee, has the authority to select those directors, officers, employees and consultants to whom options will be granted, the number of options to be granted to each person and the price at which common shares of the Company may be purchased. Grants are determined based on individual and aggregate performance as determined by the Board.
RSUs - The Company established a restricted share unit plan (the “RSU Plan”) to form part of its incentive compensation arrangements available for officers and employees of the Company and its designated affiliates (as described in greater detail it Item 6.E) as of May 28, 2010, when the RSU Plan received shareholder approval.
Perquisites and personal benefits - The Company also provides perquisites and personal benefits to its Named Executive Officers, including basic employee benefit plans, which are available to all employees, and a car allowance to cover the cost of an automobile for business purposes. These perquisites and personal benefits were determined through negotiation of an employment agreement with each Named Executive Officer (see “Employment Agreements” below). While perquisites and personal benefits are intended to fit into the Company’s overall compensation objectives by serving to attract and retain talented executive officers, the size of the Company and the nature and stage of its business also impact the level of perquisites and benefits. To date, the level of perquisites and benefits has not impacted the Company’s decisions about any other element of compensation.
Other Compensation-Related Matters - The Company’s Share Trading Policy prohibits all directors and officers of the Company from, among other things, engaging in any short sales designed to hedge or offset a decrease in market value of the securities of the Company.
-49-
Executive Compensation
The following table sets forth all direct and indirect compensation for, or in connection with, services provided to the Company (and prior to the October 22, 2009 transaction, to IPC Ltd. and Intellipharmaceutics Corp.) for the financial years ended November 30, 20112013, November 30, 2012 and November 30, 2010 and the eleven month period ended November 30, 20092011 in respect of the Chief Executive Officer of the Company, the Chief Operating Officer of the Company, the Chief Financial Officer and the former Chief Financial Officertwo other officers of the Company who earned greater than $150,000 in total compensation in the fiscal year ended November 30, 2013 (“Named Executive Officers”).
SUMMARY COMPENSATION TABLE
Name and principal position | Year | Salary (U.S.$)(1) | Share-based awards (U.S.$) | Option- based awards (U.S.$)(2) | Non-equity incentive plan compensation (U.S.$) | Pension value (U.S.$) | All other compensation (U.S.$) | Total compensation (U.S.$) | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | |
Annual incentive plans(3) | Long- term incentive plans | ||||||||
| Dr. Isa Odidi, Chairman & Chief Executive Officer | 2011 2010 2009 | 457,611 436,997 383,481 | N/A N/A N/A | Nil Nil Nil | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | 12,147 11,600 8,701 | 469,758 448,597 392,182 |
Dr. Amina Odidi, President & Chief Operating Officer (4) | 2011 2010 2009 | 457,611 436,997 383,481 | N/A N/A N/A | Nil Nil Nil | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | 12,147 11,600 8,701 | 469,758 449,597 392,182 |
Shameze Rampertab, VP Finance & Chief Financial Officer(5) | 2011 2010 | 182,205 4,614 | N/A N/A | Nil 130,256 | 70,857 N/A | N/A N/A | N/A N/A | 12,147 308 | 265,209 135,178 |
Graham Neil, former VP Finance & Chief Financial Officer(6) | 2010 | 143,990 | N/A | 37,522 | N/A | N/A | N/A | 11,512 | 193,024 |
Name and principal position | Year | Salary (U.S.$)(1) | Share- based awards (U.S.$) | Option- based awards (U.S.$)(2) | Non-equity incentive plan compensation (U.S.$) | Pension value (U.S.$) | All other compensation (U.S.$) (4) | Total compensation (U.S.$) | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | |
Annual incentive plans(3) | Long- term incentive plans | ||||||||
Dr. Isa Odidi, Chairman & Chief Executive Officer | 2013 2012 2011 | 509,716 454,912 457,611 | N/A N/A N/A | 368,832 701,741 Nil | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | 11,718 12,077 12,147 | 890,266 1,168,730 469,758 |
Dr. Amina Odidi, President & Chief Operating Officer | 2013 2012 2011 | 509,716 454,912 457,611 | N/A N/A N/A | 368,832 701,741 Nil | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | 11,718 12,077 12,147 | 890,266 1,168,730 469,758 |
Shameze Rampertab, VP Finance & Chief Financial Officer | 2013 2012 2011 | 244,117 251,610 182,205 | N/A N/A N/A | 81,645 52,049 Nil | N/A N/A 70,857 | N/A N/A N/A | N/A N/A N/A | 11,718 12,077 12,147 | 337,480 315,736 265,209 |
John Allport, VP Legal Affairs & Licensing | 2013 2012 2011 | 141,588 145,934 138,339 | N/A N/A N/A | 68,922 589,411 Nil | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | 11,718 12,077 N/A | 222,227 747,422 138,339 |
Notes:
| (1) | Salaries paid by the Company to each Named Executive Officer are paid in Canadian dollars. All amounts are expressed in U.S. dollars converted at the exchange rate of U.S.$ |
| (2) | The Company entered into a separate acknowledgement and agreement with Drs. Isa and Amina Odidi dated October 22, 2009 to be bound by the performance-based stock option agreement dated September 10, 2004 pursuant to which Drs. Isa and Amina Odidi are entitled to purchase up to 2,763,940 of the Company’s common shares upon payment of U.S.$3.62 per share, subject to satisfaction of the performance vesting conditions. The |
| (3) | Amount awarded at the discretion of the Board. |
| (4) |
Significant factors necessary to understand the information disclosed in the Summary Compensation Table above include the terms of each Named Executive Officer’s employment agreement and the terms of the separate option agreement described below.
-50-
Employment Agreements
The employment agreement with Dr. Isa Odidi, the Chief Executive Officer of the Company, effective September 1, 2004 entitles Dr. Isa Odidi to receive a base salary of U.S.$200,000 per year, which is paid in Canadian dollars, to be increased annually each year during the term of the agreement by twenty percent of the prior year’s salary. In addition, he is entitled to: (a) participate in the Option Plan; (b) participate in all employee benefit plans and programs, except for the RSU Plan and DSU Plan; and (c) a car allowance of up to U.S.$1,000 per month. The initial term of the employment agreement was until September 30, 2007, at which time, pursuant to the terms of the agreement, the agreement was deemed to be extended automatically for an additional three-year period on the same terms and conditions (i.e. until September 30, 2010). The agreement will continue to be extended automatically for successive additional three-year periods on the same terms unless the Company gives Dr. Odidi contrary written notice at least two years prior to the date on which the agreement would otherwise be extended. See “Termination and Change of Control Benefits” below. Dr. Odidi’s employment agreement was amended on August 1, 2007 and June 8, 2009 to provide for additionalinclude intellectual property, and non-competition provisions and to provide for non-solicitation provisions respectively.in favour of the Company. In April 2010, Dr. Isa Odidi offered and agreed to amend his employment agreement effective as of December 1, 2009, to eliminate the right to annual increases in his base salary of twenty per cent each year; and agreed to roll back his base salary effective December 1, 2009 to the level payable under the employment agreement for the period from September 2008 to August 2009, being C$452,000 per year. Under this amendment, the base salary is open to potential increase on an annual basis at the discretion of the Board and Dr. Isa Odidi is eligible to receive a performance bonus, based on the performance, including that of Dr. Odidi and the Company, as may be determined in the discretion of the Board. In February 2012, Dr. Isa Odidi received a grant of 300,000 options of which 200,000 vested immediately on issuance and the remaining 100,000 options vested on February 17, 2013. In April 2013, Dr. Isa Odidi received a grant of 75,000 options of which 37,500 vested immediately on issuance and the remaining 37,500 options vested on November 30, 2013.
The employment agreement with Dr. Amina Odidi, the President and Chief Operating Officer of the Company, effective September 1, 2004 entitles Dr. Amina Odidi to receive a base salary of U.S.$200,000, which is paid in Canadian dollars, per year, to be increased annually each year during the term of the agreement by twenty percent of the prior year’s salary. In addition, she is entitled to: (a) participate in the Option Plan; (b) participate in all employee benefit plans and programs, except for the RSU Plan and DSU Plan; and (c) a car allowance of up to
U.S.$1,000 per month. The initial term of the employment agreement was until September 30, 2007, at which time, pursuant to the terms of the agreement, the agreement was deemed to be extended automatically for an additional three-year period on the same terms and conditions (i.e. until September 30, 2010). The agreement will continue to be extended automatically for successive additional three-year periods on the same terms unless the Company gives Dr. Odidi contrary written notice at least two years prior to the date on which the agreement would otherwise be extended. See “Termination and Change of Control Benefits” below. Dr. Odidi’s employment agreement was amended on August 1, 2007 and June 8, 2009 to provide for additionalinclude intellectual property, and non-competition provisions and to provide for non-solicitation provisions respectively.in favour of the Company. In April 2010, Dr. Amina Odidi offered and agreed to amend her employment agreement effective as of December 1, 2009, to eliminate the right to annual increases in her base salary of twenty per cent each year; and agreed to roll back her base salary effective December 1, 2009 to the level payable under the employment agreement for the period from September 2008 to August 2009, being C$452,000 per year. Under this amendment, the base salary is open to potential increase on an annual basis at the discretion of the Board and Dr. Amina Odidi is eligible to receive a performance bonus, based on the performance, including that of Dr. Odidi and the Company, as may be determined in the discretion of the Board. In February 2012, Dr. Amina Odidi received a grant of 300,000 options of which 200,000 vested immediately on issuance and the remaining 100,000 options vested on February 17, 2013. In April 2013, Dr. Amina Odidi received a grant of 75,000 options of which 37,500 vested immediately on issuance and the remaining 37,500 options vested on November 30, 2013.
In addition, the Company entered into a separate acknowledgement and agreement with Drs. Isa and Amina Odidi dated October 22, 2009 to be bound by the performance-based stock option agreement dated September 10, 2004 pursuant to which Drs. Isa and Amina Odidi are entitled to purchase up to 2,763,940 of the Company’s common shares. These options vest upon the Company attaining certain milestones related to the FDA filings and approvals for Company drugs. The options are exercisable at a price of U.S.$3.62 per share and expire on September 10, 2014. As of the date hereof, 1,381,9701,658,364 of these options have vested and are exercisable. These options were not granted under the Option Plan.
-51-
The employment agreement with Shameze Rampertab, the Chief Financial Officer of the Company, effective November 29, 2010 entitles Mr. Rampertab to receive a base salary of C$180,000, which is paid in Canadian dollars, per year. In addition, he is entitled to: (a) participate in the Option Plan; (b) participate in all employee benefit plans and programs; and (c) a car allowance of C$1,000 per month. The initial termagreement provides for automatic renewal from year to year in absence of notice of termination from the employment agreement was until November 30, 2011,Company at which time, pursuantleast 60 days prior to the terms of the agreement, the agreement was deemed to be extended automatically for an additional one-year period on the same terms and conditions (i.e. until November 30, 2012).anniversary date. Mr. Rampertab was granted 60,000 options, of which 15,000 vested immediately on issuance and the remaining options vest as to 15,000 each year on November 29, 2011, 2012 and 2013. In December 2011, theThe agreement washas been extended for successive additional one-year periods entitlingand currently entitles Mr. Rampertab to receive a base salary of C$250,000, which is paid in Canadian dollars, per year, and a grant of 40,000 options, issued inwhich vest 13,334 each year on February 201216, 2013, 2014 and 2015. Mr. Rampertab’s employment agreement includes intellectual property, non-competition and non-solicitation covenants.provisions in favour of the Company. In April 2013, Mr. Rampertab received a grant of 25,000 options of which 12,500 vested immediately on issuance and the remaining 12,500 options vested on November 30, 2013.
The employment agreement with John Allport, the Vice President Legal Affairs and Licensing, effective September 1, 2004 entitles Mr. Allport to receive a base salary of C$95,000, which is paid in Canadian dollars, per year. In addition, he is entitled to: (a) participate in the Option Plan; (b) participate in all employee benefit plans and programs; and (c) a car allowance of C$1,000 per month. The employment agreement is for an indefinite term subject to termination on six months’ notice. In December 2011, Mr. Allport’s base salary was increased to C$145,000. In February 2012, Mr. Allport received a grant of 250,000 options of which 175,000 vested immediately on issuance and the remaining 75,000 options vested on February 17, 2013. Mr. Allport’s employment agreement includes intellectual property, non-competition and non-solicitation provisions in favour of the Company. In April 2013, Mr. Allport received a grant of 25,000 options of which 12,500 vested immediately on issuance and the remaining 12,500 options vested on November 30, 2013.
Incentive Plan Awards
Outstanding Option-Based Awards and Share-Based Awards – The following table sets forth for each Named Executive Officer all awards outstanding at the end of the most recently completed financial year, including awards granted before the most recently completed financial year. Each option grant allows the holder to purchase one common share of the Company’s common shares.
| Option-based Awards | Share-based Awards | Option-based Awards | Share-based Awards | |||||||||
| Name | Number of securities underlying unexercised options (#) | Option exercise price (U.S.$) | Option expiration date | Value of unexercised in-the-money options (U.S.$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share- based awards that have not vested (U.S.$) | Number of securities underlying unexercised options (#) | Option exercise price (U.S.$) | Option expiration date | Value of unexercised in-the-money options (U.S.$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share- based awards that have not vested (U.S.$) |
| (b) | (c) | (d) | (e) (2) | (f) | (g) | |||||||
| (a) | (b) | (c) | (d) | (e) (2) | (f) | (g) | ||||||
Drs. Isa Odidi and Amina Odidi(1) | 2,763,940 | 3.62 | Sept. 10, 2014 | N/A | N/A | 2,763,940 | 3.62 | Sept. 10, 2014 | $884,461 | N/A | N/A | |
| Dr. Isa Odidi | 300,000 75,000 | C$3.27 C$1.81 | Feb. 16, 2022 Apr. 13, 2020 | C$246,000 C$171,000 | N/A N/A | N/A N/A | ||||||
| Dr. Amina Odidi | 300,000 75,000 | C$3.27 C$1.81 | Feb. 16, 2022 Apr. 13, 2020 | C$246,000 C$171,000 | N/A N/A | N/A N/A | ||||||
| Shameze Rampertab | 60,000 | C$2.62 | Nov. 29, 2020 | C$25,800 | N/A | N/A | 60,000 40,000 25,000 | C$2.62 C$3.27 C$1.81 | Nov. 29, 2020 Feb. 16, 2017 Apr. 13, 2020 | C$88,200 C$32,800 C$57,000 | N/A N/A N/A | N/A N/A N/A |
| John Allport | 250,000 25,000 | C$3.27 C$1.81 | Feb. 16, 2022 Apr. 13, 2020 | C$205,000 C$57,000 | N/A N/A | N/A N/A | ||||||
Notes
| (1) | These option-based awards are held jointly. |
| (2) | The value of unexercised options at year-end is calculated by subtracting the option exercise price from the closing price of the common shares of the Company on the TSX for C$ exercise prices and Nasdaq for US$ exercise prices on November 30, |
Incentive Plan Awards – Value Vested or Earning During Thethe Year – The following table sets forth details of the value vested or earned during the most recently completed financial year for each incentive plan award.
| Name | Option-based awards - Value vested during the year (U.S.$) | Share-based awards - Value vested during the year (U.S.$) | Non-equity incentive plan compensation - Value earned during the year (U.S.$) |
| (a) | (b)(1) | (c) | (d) |
Drs. Isa Odidi | C$8,250 | N/A | Nil |
| Dr. Amina Odidi | N/A | Nil | |
| Shameze Rampertab | C$ | N/A | Nil |
| John Allport | C$1,375 | N/A | Nil |
Notes
| (1) | The amount represents the theoretical total value if the options had been exercised on the vesting date, established by calculating the difference between the closing price of the common shares of the Company on the TSX on |
Pension Plan Benefits
The Company does not provide a defined benefit pension plan or a defined contribution pension plan for any of its Named Executive Officers, nor does it have a deferred compensation pension plan for any of its Named Executive Officers. There are no amounts set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits.
Termination and Change of Control Benefits
The employment agreement with each of the following Named Executive Officers, Dr. Isa Odidi and Dr. Amina Odidi, by virtue of it being a fixed-term agreement with automatic renewal provisions, effectively provides for payments to the applicable Named Executive Officer following termination of the employment agreement unless the agreement has been terminated in accordance with its terms. As a result, if either Named Executive Officer had been terminated on the last business day of the Company’s most recently completed financial year, it is estimated that an amount of up to approximately $1.7C$1.3 million would be payable to such Named Executive Officer, which is the amount that would have been payable through to September 30, 2013, assuming2016, at each Named Executive Officer’s current annual salary was increased in the period in accordance with the terms of their respective contracts.level. Given their nature as fixed term employment agreements, if notice is properly provided to not renew the agreement following the term ending September 30, 2013,2016, then as such date approaches the amount payable upon termination to the Named Executive Officer will decrease to the point where no amount would be payable upon termination as at September 30, 2013.2016. Any termination of the employment of a Named Executive Officer must be undertaken by and is subject to the prior approval of the Board. There are no payments applicable under the employment agreements of the Named Executive Officers relating to a change of control of the Company
Director Compensation
The following table sets forth all amounts of compensation provided to the non-executive directors for the Company’s most recently completed financial year.
| Name | Fees earned | Share-based awards | Option-based awards | Non-equity incentive plan compensation | Pension value | All other compensation | Total |
| (a) | (b) | (c) (1) | (d) (2) | (e) | (f) | (g) | (h) |
| Eldon Smith | Nil | C$ | C$ | N/A | N/A | N/A | C$ |
| Kenneth Keirstead | C$ | N/A | C$ | N/A | N/A | N/A | C$ |
| Bahadur Madhani | C$ | N/A | C$ | N/A | N/A | N/A | C$ |
Notes:
| (1) | DSUs that were earned. Does not include DSUs |
| (2) | Option-based awards |
Significant factors necessary to understand the information disclosed in the Director Compensation Table above include the following: Non-management directors receive an annual retainer of C$24,000 for four quarterly meetings. Special or extraordinary meetings will result$25,000 paid in an additional C$500 per meeting.Canadian dollars. The Audit committee members receive an annual retainer of C$2,000 for four quarterly meetings. Special or extraordinary meetings will result in an additional C$500 per meeting. The audit committeeCommittee chair receives an annual retainer of C$4,000 for four quarterly meetings. Special or extraordinary meetings$10,000 paid in Canadian dollars. The Corporate Governance Committee chair and Compensation Committee Chair, each receives an annual retainer of $5,000 paid in Canadian dollars. Non-chair committee members, are paid an additional $2,500 per year per committee paid in Canadian dollars. Meetings will result in an additional C$500$1,000 per meeting.day per meeting paid in Canadian dollars.
Outstanding Option-Based Awards and Share-Based Awards – The following table sets forth all amounts of option-based and share-based awards to the non-executive directors for the Company’s most recently completed financial year.
| Option-based Awards | Share-based Awards | ||||||
| Name | Number of securities underlying unexercised options (#) | Option exercise price (U.S.$) | Option expiration date | Value of unexercised in-the-money options (U.S.$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share- based awards that have not vested (U.S.$) | |
| (a) | (b) | (c) | (d) | (e) (1) | (f) (2) | (g) (3) | |
Eldon Smith | 5,000 25,000 10,000 25,000 | C$2.88 C$3.25 C$2.88 C$1.81 | Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019 Apr. 13, 2020 | C$ C$ C$12,100 C$57,000 | Nil Nil Nil | C$ Nil Nil Nil | |
Kenneth Keirstead | 5,000 25,000 10,000 25,000 | C$2.88 C$3.25 C$2.88 C$1.81 | Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019 Apr. 13, 2020 | C$ C$21,000 C$12,100 C$57,000 | Nil | Nil Nil Nil | Nil Nil Nil Nil |
Bahadur Madhani | 5,000 25,000 10,000 25,000 | C$2.88 C$3.25 C$2.88 C$1.81 | Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019 Apr. 13, 2020 | C$ C$ C$12,100 C$57,000 | Nil Nil Nil Nil | Nil Nil Nil Nil | |
Notes:
| (1) | The value of unexercised options at year-end is calculated by subtracting the option exercise price from the closing price of the common shares of the Company on the TSX on November 30, |
| (2) | These DSUs are permitted to be redeemed only following termination of Board service. Includes DSUs earned as at November 30, |
| (3) | The value of DSUs at year-end is calculated from the closing price of the common shares of the Company on the TSX on November 30, |
Incentive Plan Awards – Value Vested or Earned During The Year – The following table sets forth all amounts of option-based and share-based awards vested to the non-executive directors of the Company for the most recently completed financial year and no non-equity incentive plan compensation was earned during the most recently completed financial year.
| Name | Option-based awards - Value vested during the year (U.S.$) | Share-based awards - Value vested during the year (U.S.$) | Non-equity incentive plan compensation - Value earned during the year (U.S.$) |
| (a) | (b) (1) | (c) (2) | (d) |
| Eldon Smith | C$ | Nil | Nil |
| Kenneth Keirstead | C$ | N/A | Nil |
| Bahadur Madhani | C$ | N/A | Nil |
Notes:
| (1) | The amount represents the theoretical total value if the options had been exercised on the vesting date, established by calculating the difference between the closing price of the common shares of the Company on the TSX on |
| (2) | The amount represents the theoretical total value of DSUs which were fully vested on their respective dates of issuance. DSUs are issued at the calculated market value of a common share on the date of issuance. |
Directors’ and Officers’ Liability Insurance
The Company maintains insurance for the liability of its directors and officers arising out of the performance of their duties. The total amount of such insurance maintained is $8,000,000 subject to a deductible loss payable of $50,000 to $100,000 by the Company. The premium payable by the Company for the period from October 25, 20112013 to October 25, 20122014 is $89,800.$91,375.
C. | Board Practices |
Board of Directors
See Items 6.A and 6.B.
Committees of the Board of Directors
AUDIT COMMITTEE
The Audit Committee of the Board monitors our financial activities, policies, and internal control procedures. The Audit Committee assists the Board in fulfilling its oversight responsibility to shareholders, potential shareholders, the investment community, and others with respect to the Company’s financial statements, financial reporting process, systems of internal accounting and disclosure controls, performance of the external auditors, and risk assessment and management. The Audit Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities and personnel of the Company, its auditors and its legal advisors. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under the Audit Committee Charter, the Audit Committee has the authority to independently retain special legal, accounting, or other consultants to advise it.
Audit Committee Charter
The charter of the Audit Committee can be found on the Company’s website at www.intellipharmaceutics.com.
-55-
Composition of the Audit Committee
Our Audit Committee is comprised of Kenneth Keirstead, Bahadur Madhani and Dr. Eldon Smith, each of whom is considered independent and financially literate (as such terms are defined under applicable Canadian securities legislation) and satisfies the independence criteria of Rule 10A3-(b)(1) under the U.S. Exchange Act. The members of the Audit Committee have selected a Chair from amongst themselves, being Mr. Madhani.
Under the United States Securities and Exchange Commission (the “SEC”) rules implementing the Sarbanes-Oxley Act of 2002, Canadian issuers filing reports in the United States must disclose whether their audit committees have at least one “audit committee financial expert”. Additionally, under NASDAQ Listing Rule 5605(c)(2)(A), NASDAQ requires that one member of the audit committee be financially sophisticated, meaning that they must have “past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.” The Board has determined that Mr. Madhani qualifies as an audit committee financial expert under the applicable SECSecurities and Exchange Commission rules and as financially sophisticated under the applicable NASDAQ rules.
Relevant Education and Experience
Kenneth Keirstead is educated in clinical biochemistry as a graduate of the Pathology Institute in Halifax; and business administration, as a graduate of the College of William and Mary and Columbia University. Mr. Keirstead has been a director of the Company since January 2006. He has worked in the healthcare delivery and pharmaceutical industries for over 45 years. He was President and CEO, Sanofi Winthrop Canada Inc.; General Manager, Squibb Medical Systems International; President, Chemfet International and President, Quinton Instruments among other positions. Mr. Keirstead has published studies and reports on healthcare and related services topics. Since 1998 Mr. Keirstead’s principal occupation has been as Executive Manager of the Lyceum Group, a Canadian consulting services company primarily active in the healthcare field, of which Mr. Keirstead is the founder.
Bahadur Madhani is ana chartered accountant by training andwho has been a director of the Company since March 31, 2006. He was a member of the advisory board of Quebecor Ontario and former chairmanChairman of United Way of Toronto, former chairChair of YMCA of Greater Toronto, and former chairChair of Nelson Mandela Children’s Fund Canada.Canada, former Vice-Chair of YMCA Canada and former Chair, Toronto Grants Review Team of the Ontario Trillium Foundation. He was awarded membership in the Order of Canada in 2001. Since 1983, Mr. Madhani’s principal occupation has been as President and CEO of Equiprop Management Limited, a Canadian property management company of which Mr. Madhani is the principal shareholder. He is currently on the boardsChair of the YMCA of Toronto and YMCA Canada.
Dr. Eldon Smith is a medical doctor who graduated from the Dalhousie University Medical School and who has been a director of the Company since October 2009. He is president and CEO of Eldon R. Smith and Associates Ltd. a private healthcare consulting company. He is also professor emeritus at the University of Calgary, where he served as the Dean of the Faculty of Medicine subsequent to being Head of the Department of Medicine and the Division of Cardiology. Dr. Smith is past-President of the Canadian Cardiovascular Society and served as Chairman of the Scientific Review Committee of the Heart and Stroke Foundation of Canada. Dr. Smith was appointed as an Officer of the Order of Canada in November 2005. In October 2006, Dr. Smith was appointed by the Honourable Tony Clement, Minister of Health, to chair the Steering Committee responsible for developing a new Heart-Health strategy to fight heart disease in Canada. Dr. Smith currently serves on the boards of Canadian Natural Resources Limited, Aston Hill Financial Inc., and Resverlogix Corp.
Pre-Approval Policies and Procedures
The Audit Committee reviewed with the independent auditor (who is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with Canadian and United States generally accepted accounting principles) their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Canadian and United States generally accepted auditing standards. In addition, the Audit Committee has discussed with the independent auditor the auditor’s independence from management and the Company including the matters in the written disclosures provided to the Audit Committee by the independent auditor, and considered the compatibility of non-audit services with the auditor’s independence.
The Company’s independent auditor is accountable to the Board and to the Audit Committee. The Board, through the Audit Committee, has the ultimate responsibility to evaluate the performance of the independent auditor, and through the shareholders, to appoint, replace and compensate the independent auditor. Under the Sarbanes-Oxley Act of 2002, the independent auditor of a public company is prohibited from performing certain non-audit services. The Audit Committee has adopted procedures and policies for the pre-approval of non-audit services, as described in the Audit Committee Charter. Under the terms of such policies and procedures, the Audit Committee has adopted a list of pre-approved services, including audit and audit-related services and tax services, and a list of prohibited non-audit services deemed inconsistent with an auditor’s independence.
The list of pre-approved services includes:
| 1. | Audit Services |
| · | Audits of the Company’s consolidated financial statements; |
| · | Statutory audits of the financial statements of the Company’s subsidiaries; |
| · | Reviews of the quarterly consolidated financial statements of the Company; |
| · | Services associated with registration statements, prospectuses, periodic reports and other documents filed with securities regulatory bodies (such as the SEC and Ontario Securities Commission) or other documents issued in connection with securities offerings (e.g., comfort letters and consent letters) and assistance in responding to comment letters from securities regulatory bodies; |
| · | Special attest services as required by regulatory and statutory requirements; |
| · | Regulatory attestation of management reports on internal controls as required by the regulators; and |
| · | Consultations with the Company’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the securities regulatory authorities, accounting standard setting bodies (such as the Financial Accounting Standards Board |
| 2. | Audit-Related Services |
| · | Presentations or training on accounting or regulatory pronouncements; |
| · | Due diligence services related to accounting and tax matters in connection with potential acquisitions / dispositions; and |
| · | Advice and documentation assistance with respect to internal controls over financial reporting and disclosure controls and procedures of the Company. |
| 3. | Tax Services |
| a. | Compliance Services |
| · | Assistance with the preparation of corporate income tax returns and related schedules for the Company and its subsidiaries; |
| · | Assistance with the preparation of Scientific Research & Experimental Development investment tax credit claims and amended tax returns of the Company; and |
| · | Assistance in responding to Canada Revenue Agency or Internal Revenue Service on proposed reassessments and other matters. |
-57-
| b. | Canadian & International Planning Services |
| · | Advice with respect to cross-border/transfer pricing tax issues; |
| · | Advice related to the ownership of corporate intellectual property in jurisdictions outside of Canada; |
| · | Assistance in interpreting and understanding existing and proposed domestic and international legislation, and the administrative policies followed by various jurisdictions in administering the law, including assisting in applying for and requesting advance tax rulings or technical interpretations; |
| · | Assistance in interpreting and understanding the potential impact of domestic and foreign judicial tax decisions; |
| · | Assistance and advising on routine planning matters; and |
| · | Assistance in advising on the implications of the routine financing of domestic and foreign operations, including the tax implications of using debt or equity in structuring such financing, the potential impact of non-resident withholding tax and the taxation of the repatriation of funds as a return of capital, a payment of a dividend, or a payment of interest. |
| c. | Commodity Tax Services |
| · | Assistance regarding Harmonized Sales Tax/Goods and Services Sales Tax/ |
| · | Commodity tax advice and compliance assistance with business reorganizations; |
| · | Advice and assistance with respect to government audits/assessments; |
| · | Advice with respect to other provincial tax filings and assessments; and |
| · | Assistance with interpretations or rulings. |
The list of prohibited services includes:
| · | Bookkeeping or other services related to the preparation of accounting records or financial statements; |
| · | Financial information systems design and implementation; |
| · | Appraisal or valuation services for financial reporting purposes; |
| · | Actuarial services for items recorded in the financial statements; |
| · | Internal audit outsourcing services; |
| · | Management functions; |
| · | Human resources; |
| · | Certain corporate finance and other services; |
| · | Legal services; and |
| · | Certain expert services unrelated to the audit. |
The Audit Committee also discusses with the Company’s independent auditor the overall scope and plans for their audit. The Audit Committee meets with the independent auditor, with and without management present, to discuss the results of their examination, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Audit Committee held fivefour meetings during the period from December 1, 20102012 to November 30, 2011.2013.
-58-
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board approved) that the audited consolidated financial statements be included in the Annual Report for the year ended November 30, 20112013 for filing with the Canadian provincial securities commissions and the SEC.
COMPENSATION, NOMINATING, AND CORPORATE GOVERNANCE COMMITTEE
Compensation Committee Mandate and Purpose
The Compensation Committee of the Board is a standing committee of the Board whose primary function is to assist the Board in fulfilling its responsibilities relating to:
| · | the development, review and periodic approval of the Company's compensation philosophy that attracts and retains key executives and employees, while supporting the overall business strategy and objectives and links compensation with business objectives and organizational performance; |
| · | evaluate and approve all compensation of executive officers including salaries, bonuses and equity compensation that are required to be determined; |
| · | review the Company's Option Plan, the employee RSU plan and the DSU plan on an annual basis; |
| · | review and make recommendations to the Board on compensation payable to senior officers of the Company to be hired subsequent to the adoption of the Charter; and |
| · | produce a report annually on executive officer compensation for inclusion in the proxy circular of the Company. |
Compensation Committee Charter
The charter of the Compensation Committee can be found on the Company’s website at www.intellipharmaceutics.com.
Composition of the Compensation Committee
The Compensation Committee is composed of Kenneth Keirstead, Bahadur Madhani and Dr. Eldon Smith, each of whom is considered independent and is a director of the Company. All of the members shall be "independent" as such term is defined in applicable securities legislation. In no case shall a member be a current employee or immediate family member of a current employee. The members of the Compensation Committee have selected a Chair from amongst themselves, being Dr. Eldon Smith.
Corporate Governance Committee Mandate and Purpose
The Corporate Governance Committee of the Board is a standing committee of the Board whose primary function is to assist the Board in dealing with the corporate governance matters described in the Charter.
Corporate Governance Committee Charter
The charter of the Corporate Governance Committee can be found the Company’s website at www.intellipharmaceutics.com.
Composition of the Corporate Governance Committee
The Corporate Governance Committee is composed of three directors, two of whom shall be “independent” as such term is defined in applicable securities legislation. Kenneth Keirstead and Dr. Eldon Smith is each considered independent and is a director of the Company. John Allport, an officer of the Company, is not considered independent and is a director of the Company. The members of the Corporate Governance Committee have selected a Chair from amongst themselves, being Kenneth Keirstead.
D. | Employees |
The number of full-time employees as of each of last three fiscal years is as follows:
| November 30, 2011 | November 30, 2010 | November 30, 2009 | November 30, 2013 | November 30, 2012 | November 30, 2011 | November 30, 2010 | |
| Research Employees | 24 | 19 | 16 | 30 | 29 | 24 | 19 |
| Administrative Employees | 9 | 10 | 7 | 8 | 8 | 9 | 10 |
Our employees are not governed by a collective agreement. We have not experienced a work stoppage and believe our employee relations are satisfactory. For each of the last three fiscal years, all employees of the Company were employed at the Company’s offices in Toronto. In February 2012, the Company appointed its first U.S. employee in its U.S. subsidiary, IPC Ltd. and this employee resigned in December 2012.
E. | Share Ownership |
The following table states the names of the directors and officers of the Company, the positions within the Company now held by them, and the approximate number of common shares of the Company beneficially owned or over which control or direction is exercised by each of them as of May 10, 2012.
February 18, 2014.
| Name | Name | Position with the Company | Number of Shares Owned | Percentage of common shares owned | Number of Stock Options Held(2) | Exercise Price | Option Expiry dd/mm/yyyy | Number of Currently Exercisable Options | Number of Deferred Share Units Held | Number of Restricted Share Units Held | Position with the Company | Number of Common Shares Owned | Percentage of Common Shares Owned | Number of Stock Options Held(2) | Exercise Price | Option Expiry dd/mm/yyyy | Number of Currently Exercisable Options(4) | Number of Common Shares Issuable on Conversion of Convertible Debt | Number of Deferred Share Units Held | Number of Restricted Share Units Held | ||||||||
| Dr. Isa Odidi | Dr. Isa Odidi | Chief Executive Officer and Chairman of the Board and Director of the Company | 5,997,751 (1) | 33.79% | 2,763,940 300,000 | $3.62 3.27 | 10/09/2014 16/02/2022 | 1,381,970 200,000 | N/A | N/A | Chief Executive Officer and Chairman of the Board and Director of the Company | 5,997,751(1) | 26.29% | 2,763,940 300,000 75,000 | $3.62 C$3.27 C$1.81 | 10/09/2014 16/02/2022 13/04/2020 | 1,658,364 300,000 75,000 | 500,000(3) | N/A | N/A | ||||||||
| Dr. Amina Odidi | Dr. Amina Odidi | President, Chief Operating Officer and Director of the Company | 5,997,751 (1) | 33.79% | 2,763,940 300,000 | 3.62 3.27 | 10/09/2014 16/02/2022 | 1,381,970 200,000 | N/A | N/A | President, Chief Operating Officer and Director of the Company | 5,997,751(1) | 26.29% | 2,763,940 300,000 75,000 | $3.62 C$3.27 C$1.81 | 10/09/2014 16/02/2022 13/04/2020 | 1,658,364 300,000 75,000 | 500,000(3) | N/A | N/A | ||||||||
| John N. Allport | John N. Allport | Vice-President, Legal Affairs and Licensing and Director of the Company | 110,558 | 0.62% | 250,000 | 3.27 | 16/02/2022 | 175,000 | N/A | Nil | Vice-President, Legal Affairs and Licensing and Director of the Company | 110,558 | 0.48% | 250,000 25,000 | C$3.27 C$1.81 | 16/02/2022 13/04/2020 | 250,000 25,000 | N/A | Nil | |||||||||
| Dr. Eldon R. Smith | Dr. Eldon R. Smith | Director of the Company | 17,731 | 0.10% | 10,000 5,000 25,000 | 2.88 2.88 3.25 | 22/10/2019 30/11/2016 30/11/2016 | 12,500 | 15,495 | N/A | Director of the Company | 21,731 | 0.10% | 10,000 5,000 25,000 25,000 | C$2.88 C$2.88 C$3.25 C$1.81 | 22/10/2019 30/11/2016 30/11/2016 13/04/2020 | 10,000 5,000 25,000 25,000 | N/A | 45,365 | N/A | ||||||||
| Kenneth Keirstead | Director of the Company | Nil | 10,000 5,000 25,000 | 2.88 2.88 3.25 | 22/10/2019 30/11/2016 30/11/2016 | 12,500 | Nil | N/A | ||||||||||
| Bahadur Madhani | Director of the Company | 4,007 | 0.02% | 10,000 5,000 25,000 | 2.88 2.88 3.25 | 22/10/2019 30/11/2016 30/11/2016 | 12,500 | Nil | N/A | |||||||||
| Shameze Rampertab | Vice President Finance and Chief Financial Officer of the Company | 5,000 | 0.03% | 60,000 40,000 | 2.62 3.27 | 29/11/2020 16/02/2022 | 30,000 | N/A | Nil | |||||||||
| Totals | 6,135,047 | 34.56% | 3,558,940 | 2,024,470 | 15,495 | Nil | ||||||||||||
| Kenneth Keirstead | Director of the Company | Nil | Nil | 10,000 5,000 25,000 25,000 | C$2.88 C$2.88 C$3.25 C$1.81 | 22/10/2019 30/11/2016 30/11/2016 13/04/2020 | 10,000 5,000 25,000 25,000 | N/A | Nil | N/A |
| Bahadur Madhani | Director of the Company | 4,007 | 0.02% | 10,000 5,000 25,000 25,000 | C$2.88 C$2.88 C$3.25 C$1.81 | 22/10/2019 30/11/2016 30/11/2016 13/04/2020 | 10,000 5,000 25,000 25,000 | N/A | Nil | N/A |
| Dr. Patrick Yat | Vice-President Pharmaceutical Analysis and Chemistry of the Company | 27,600 | 0.12% | 50,000 15,000 | C$3.82 C$1.81 | 24/05/2021 13/04/2020 | 50,000 15,000 | N/A | N/A | Nil |
| Shameze Rampertab | Vice President Finance and Chief Financial Officer of the Company | 5,000 | 0.02% | 60,000 40,000 25,000 | C$2.62 C$3.27 C$1.81 | 29/11/2020 16/02/2017 13/04/2020 | 60,000 26,667 25,000 | N/A | N/A | Nil |
| Totals | 6,166,647 | 27.03% | 4,173,940 | 3,055,031 | 500,000 | 45,365 | Nil |
Notes:
| (1) | 2,763,940 performance-based options held by Odidi Holdings Inc., a private company owned and controlled by Dr. Isa Odidi, Dr. Amina Odidi and their family trust, 300,000 stock options held by each of Dr. Isa Odidi and Dr. Amina Odidi. |
| (2) | For information regarding option expiration dates and exercise price refer to the tables included under Item 6.B. |
| (3) | On January 10, 2013, the Company completed a private placement financing of an |
| (4) | Includes options |
As of May 10, 2012,February 18, 2014, the directors and executive officers of the Company as a group owned, directly or indirectly, or exercised control or direction over 6,135,0476,166,647 common shares, representing approximately 34.6%27.0% of the issued common shares of the Company and as a group(and beneficially owned 8,159,517approximately 9,721,678 common shares (includingrepresenting 36.9% of our common shares including common shares issuable upon the exercise of outstanding options and the conversion of the convertible debenture that are held by the directors and executive officers that are exercisable or convertible within 60 days of the date hereof), representing approximately 41.3% of the common shares of the Company..
The Company has in place a stock option plan (the “Option Plan”) for the benefit of certain officers, directors, employees and consultants of the Company, including the Named Executive Officers (see below under “Employee Stock Option Plan”). Certain Named Executive Officers have been issued options under such plan. The Company has also granted performance-based options to Dr. Isa Odidi and Dr. Amina Odidi pursuant to a separate option agreement, which was negotiated with the Named Executive Officers at the same time as their employment agreements. These options vest upon the Company attaining certain milestones relating to FDA filings and approvals for company drugs, such that 276,394 options vest in connection with each of the FDA filings for the first five Company drugs and 276,394 options vest in connection with each of the FDA approvals for the first five Company drugs. To date, the level of these performance-based options has been taken into account by the Board and impacted the Company’s decisions about base salary and option-based awards under the Option Plan for the Named Executive Officers. No other performance-based options have been granted to any other Named Executive Officer.
Employee Stock Option Plan
The Option Plan was adopted effective October 22, 2009 as part of the IPC Arrangement Transaction approved by the shareholders of IPC Ltd., our predecessor company, at the meeting of shareholders on October 19, 2009. Subject to the requirements of the Option Plan, the Board, with the assistance of the Compensation Committee, has the authority to select those directors, officers, employees and consultants to whom options will be granted, the number of options to be granted to each person and the price at which common shares of the Company may be purchased. Grants are determined based on individual and aggregate performance determined by the Board.
-61-
The key features of the Option Plan are as follows:
| · | The eligible participants are full-time and part-time employees, officers and directors of, or consultants to, the Company or its affiliates, which may be designated from time to time by the Board. |
| · | The fixed maximum percentage of common shares issuable under the Option Plan is 10% of the issued and outstanding common shares from time to time. The Option Plan will automatically “reload” after the exercise of a an option provided that the number of common shares issuable under the Option Plan does not then exceed the maximum percentage of 10%. |
| · | There are no restrictions on the maximum number of options which may be granted to insiders of the Company other than not more than 1% of the total common shares outstanding on a non-diluted basis can be issued to non-executive directors of the Company pursuant to options granted under the Option Plan and the value of any options granted to any non-executive director of the Company, shall not, on an annual basis, exceed $100,000. |
| · | The Board determine the exercise price of each option at the time the option is granted, provided that such price is not lower than the “market price” of common shares at the time the option is granted. “Market price” means the volume weighted average trading price of common shares on the TSX, or another stock exchange where the majority of the trading volume and value of common shares occurs, for the five trading days immediately preceding the relevant date, calculated in accordance with the rules of such stock exchange. |
| · | Unless otherwise determined by the Board, each option becomes exercisable as to 33⅓% on a cumulative basis, at the end of each of the first, second and third years following the date of grant. |
| · | The period of time during which a particular option may be exercised is determined by the Board, subject to any Employment Contract or Consulting Contract (both as hereinafter defined), provided that no such option term shall exceed 10 years. |
| · | If an option expiration date falls within a “black-out period” (a period during which certain persons cannot trade common shares pursuant to a policy of the Company’s respecting restrictions on trading), or immediately following a black-out period, the expiration date is automatically extended to the date which is the tenth business day after the end of the black-out period. |
| · | Options may terminate prior to expiry of the option term in the following circumstances: |
| · | on death of an optionee, options vested as at the date of death are immediately exercisable until the earlier of 180 days from such date and expiry of the option term; and |
| · | if an optionee ceases to be a director, officer, employee or consultant of the Company for any reason other than death, including receipt of notice from the Company of the termination of his, her or its Employment Contract or Consulting Contract (as defined below), options vested as at the date of termination are exercisable until the earlier of 120 days following such date and expiry of the option term, |
subject however to any contract between the Company and any employee relating to, or entered into in connection with, the employment of the employee or between the Company and any director with respect to his or her directorship or resignation there from (an “Employment Contract”), any contract between the Company and any consultant relating to, or entered into in connection with, services to be provided to the Company (a “Consulting Contract”) or any other agreement to which the Company is a party with respect to the rights of such person upon termination or change in control of the Company. |
-62-
| · | Options and rights related thereto held by an optionee are not to be assignable or transferable except on the death of the optionee. |
| · | If there is a take-over bid (within the meaning of the Securities Act (Ontario)) made for all or any of the issued and outstanding common shares of the Company, then all options outstanding become immediately exercisable in order to permit common shares issuable under such options to be tendered to such bid. |
| · | If there is a consolidation, merger, amalgamation or statutory arrangement involving the Company, separation of the business of the Company into two or more entities or sale of all or substantially all of the assets of the Company to another entity, the optionees will receive, on exercise of their options, the consideration they would have received had they exercised their options immediately prior to such event. In such event and in the event of a securities exchange take-over bid, the Board may, in certain circumstances, require optionees to surrender their options if replacement options are provided. In the context of a cash take-over bid for 100% of the issued and outstanding common shares of the Company, optionees may elect to conditionally surrender their options or, if provided for in an agreement with the offeror, automatically exchange their options for options of the offeror. |
| · | The Board may from time to time in its absolute discretion amend, modify and change the provisions of the Option Plan or any options granted pursuant to the Option Plan, provided that any amendment, modification or change to the provisions of the Option Plan or any options granted pursuant to the Option Plan shall: |
| · | not adversely alter or impair any option previously granted; |
| · | be subject to any regulatory approvals, where required, including, where applicable, the approval of the TSX and/or such other exchange as may be required; and |
| · | not be subject to shareholder approval in any circumstances, except where the amendment, modification or change to the Option Plan or option would: |
| (i) | reduce the exercise price of an option held by an insider of the Company; |
| (ii) | extend the term of an option held by an insider beyond the original expiration date (subject to such date being extended in a black-out extension situation); |
| (iii) | increase the fixed maximum percentage of common shares issuable under the Option Plan; or |
| (iv) | amend the amendment provision of the Option Plan; |
in which case the amendment, modification or change will be subject to shareholder approval in accordance with the rules of the TSX and/or such other exchange as may be required. Amendments to the Option Plan not requiring shareholder approval may for example include, without limitation:
| · | amendments of a “housekeeping nature”, including any amendment to the Option Plan or an option that is necessary to comply with applicable law or the requirements of any regulatory authority or stock exchange; |
| · | changes to the exercise price of an option to an exercise price not below the “market price” unless the change is a reduction in the exercise price of |
-63-
| · | amendments altering, extending or accelerating any vesting terms or conditions in the Option Plan or any options; |
| · | changes amending or modifying any mechanics for exercising an option; |
| · | amendments changing the expiration date (including acceleration thereof) or changing any termination provision in any option, provided that such change does not entail an extension beyond the original expiration date of such option (subject to such date being extended in a black-out extension situation); |
| · | amendments introducing a cashless exercise feature, payable in securities, whether or not such feature provides for a full deduction of the number of underlying securities from the Option Plan maximum; |
| · | amendments changing the application of the provisions of the Option Plan dealing with adjustments in the number of shares, consolidations and mergers and take-over bids; |
| · | amendments adding a form of financial assistance or amending a financial assistance provision which is adopted; |
| · | amendments changing the eligible participants of the Option Plan; and |
| · | amendments adding a deferred or restricted share unit provision or any other provision which results in participants receiving securities while no cash consideration is received by the Company. |
The Board may discontinue the Option Plan at any time without consent of the participants under the Option Plan provided that such discontinuance shall not adversely alter or impair any option previously granted.
A copy of the Option Plan is available upon request in writing to the Chief Financial Officer of the Company at 30 Worcester Road, Toronto, Ontario, M9W 5X2 or on www.sedar.com.
The 1,775,1632,281,971 shares that are currently authorized for issuance under the Option Plan represent 10% of the common shares issued and outstanding as at May 10, 2012.February 18, 2014. Of the options authorized for issuance under the Option Plan, a total of 1,376,8181,679,132 have been issued, representing 7.8%7.4% of the shares issued and outstanding as of May 10, 2012.February 18, 2014. As of May 10, 2012, 25,000February 18, 2014, 40,500 options have been exercised under the Plan.
Restricted Share Unit Plan
The Company established a restricted share unit plan (the “RSU Plan”) to form part of its incentive compensation arrangements available for officers and employees of the Company and its designated affiliates as of May 28, 2010, when the RSU Plan received shareholder approval.
The key features of the RSU Plan are as follows:
| · | The stated purpose of the RSU Plan is to advance the interests of the Company through the motivation, attraction and retention of employees and officers of the Company and the designated affiliates of the Company and to secure for the Company and the shareholders of the Company the benefits inherent in the ownership of common shares by employees and officers of the Company, it being generally recognized that share incentive plans aid in attracting, retaining and encouraging employees and officers due to the opportunity offered to them to acquire a proprietary interest in the Company. |
| · | Employees and officers, including both full-time and part-time employees, of the Company and any designated affiliate of the Company, but not any directors of the Company, are eligible to participate under |
| the RSU Plan. By the terms of the RSU Plan, Dr. Isa Odidi and Dr. Amina Odidi are specifically not eligible to participate. |
-64-
| · | The RSU Plan is administered by the Board or a committee thereof, which will determine, from time to time, who may participate in the RSU Plan, the number of RSUs to be awarded and the terms of each RSU, all such determinations to be made in accordance with the terms and conditions of the RSU Plan. |
| · | The number of common shares available for issuance upon the vesting of RSUs awarded under the RSU Plan is limited to 330,000 common shares of the Company. |
| · | A separate notional account will be maintained for each participant under the RSU Plan. Each such account will be credited with RSUs awarded to the participant from time to time by way of a bookkeeping entry in the books of the Company. On the vesting of the RSUs and the corresponding issuance of common shares to the participant, or on the forfeiture and cancellation of the RSUs, the RSUs credited to the participant’s account will be cancelled. |
| · | At the time of the award of RSUs, the Board will determine in its sole discretion the vesting criteria (whether based on time or performance measures) applicable to the awarded RSUs. Unless otherwise determined by the Board at the time of the award, RSUs will vest in respect of 33 1/3 % of the common shares subject to the RSUs on the first day after each of the first three anniversaries of the award date of such RSU. Notwithstanding the foregoing, all vesting and issuances or payments, as applicable, will be completed no later than December 15 of the third calendar year commencing after an award date. |
| · | The RSU Plan provides that any unvested RSUs will vest at such time as determined by the Board in its sole discretion such that participants in the RSU Plan will be able to participate in a change of control transaction, including by surrendering such RSUs to the Company or a third party or exchanging such RSUs, for consideration in the form of cash and/or securities. |
| · | Under the RSU Plan, should the vesting of an RSU fall within a blackout period or within nine business days following the expiration of a blackout period, the vesting will be automatically extended to the tenth business day after the end of the blackout period. |
| · | If an “event of termination” has occurred, any and all common shares corresponding to any vested RSUs in a participant’s account, if any, will be issued as soon as practicable after the event of termination to the former participant. If an event of termination has occurred, any unvested RSUs in the participant’s account will, unless otherwise determined by the Board in its discretion, forthwith and automatically be forfeited by the participant and cancelled. Notwithstanding the foregoing, if a participant is terminated for just cause, each unvested RSU in the participant’s account will be forfeited by the participant and cancelled. An “event of termination” is defined under the RSU Plan as an event whereby a participant ceases to be eligible under the RSU Plan and is deemed to have occurred by the giving of any notice of termination of employment (whether voluntary or involuntary and whether with or without cause), retirement, or any cessation of employment for any reason whatsoever, including disability or death. |
| · | No rights under the RSU Plan and no RSUs awarded pursuant to the provisions of the RSU Plan are assignable or transferable by any participant other than pursuant to a will or by the laws of descent and distribution. |
| · | Under the RSU Plan, the Board may from time to time in its absolute discretion amend, modify and change the provisions of the RSU Plan or any RSUs awarded pursuant to the Plan, provided that any amendment will: |
| · | not adversely alter or impair any RSU previously awarded except as permitted by the adjustment provisions in the RSU Plan; |
| · | be subject to any regulatory approvals including, where required, the approval of the TSX; |
| · | be subject to shareholder approval in accordance with the rules of the TSX in circumstances where the amendment, modification or change to the RSU Plan or RSUs would: |
| (i) | allow for the assignment or transfer of any right under the RSU Plan or a RSU awarded pursuant to the provisions of the RSU Plan other than as provided for under the assignability provisions in the RSU Plan; |
| (ii) | increase the fixed maximum number of common shares which may be issued pursuant to the RSU Plan; or |
-65-
| (iii) | amend the amendment provisions of the RSU Plan; and |
| · | not be subject to shareholder approval in circumstances (other than those listed in the paragraph immediately above), including, but not limited to, circumstances where the amendment, modification or change to the RSU Plan or RSU would: |
| (i) | be of a “housekeeping nature”, including any amendment to the RSU Plan or a RSU that is necessary to comply with applicable law or the requirements of any regulatory authority or stock exchange and any amendment to the RSU Plan or a RSU to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein; |
| (ii) | alter, extend or accelerate any vesting terms or conditions in the RSU Plan or any RSU; |
| (iii) | change any termination provision in any RSU; |
| (iv) | introduce features to the RSU Plan that would permit the Company to, instead of issuing common shares from treasury upon the vesting of the RSUs, retain a broker and make payments for the benefit of participants to such broker who would purchase common shares through the facilities of the TSX for such participants; |
| (v) | introduce features to the RSU Plan that would permit the Company to, instead of issuing common shares from treasury upon the vesting of the RSUs, make lump sum cash payments to participants; |
| (vi) | change the application of the adjustment provisions of the RSU Plan or the change of control provisions of the RSU Plan; or |
| (vii) | change the eligible participants under the RSU Plan. |
A copy of the RSU Plan is available upon request in writing to the Chief Financial Officer of the Company at 30 Worcester Road, Toronto, Ontario, M9W 5X2.
The 330,000 common shares that are currently authorized under the RSU Plan represent approximately 1.9%1.4% of the Company’s common shares issued and outstanding as at May 10, 2012.February 18, 2014. There are no RSUs outstanding as of May 10, 2012.February 18, 2014.
Deferred Share Unit Plan
The Company established as of May 28, 2010 when it received shareholder approval, a deferred share unit plan (the “DSU Plan”) to permit directors who are not officers of the Company, to defer receipt of all or a portion of their Board fees until termination of Board service and to receive such fees in the form of common shares at that time.
The key features of the DSU Plan are as follows:
| · | The DSU Plan is administered by the Board or a committee thereof. Members of the Board who are not salaried officers or employees of the Company or a related corporation are eligible to participate under the DSU Plan. By the terms of the DSU Plan, Dr. Isa Odidi and Dr. Amina Odidi are specifically not eligible to participate. |
| · | The number of common shares available for issuance upon redemption of DSUs issued under the DSU Plan is limited to 110,000 common shares of the Company, representing approximately 1% of the total number of issued and outstanding Common Shares as of the date hereof. |
| · | Each participant may elect to be paid a minimum of 20% up to a maximum of 100%, in 10% increments, of Board fees in the form of DSUs in lieu of being paid such fees in cash. On the date on which Board fees are payable (on a quarterly basis), the number of DSUs to be credited to the participant is determined by dividing an amount equal to the designated percentage of the Board fees that the participant has elected to have credited in DSUs on that fee payment date, by the calculated market value of a common share (typically on the Toronto Stock Exchange) on that fee payment date. The market value of a common share is the weighted average trading price of the common shares on any exchange where the common shares are listed (including the TSX) for the last five trading days prior to such day. If dividends are declared by the Company, a participant will also be credited with dividend equivalents in the form of additional DSUs based on the number of DSUs the participant holds on the record date for the payment of a dividend. Dividend equivalents are calculated by dividing (i) the amount obtained by multiplying the amount of the dividend declared and paid per common share by the number of DSUs in the |
| · | A participant is permitted to redeem his/her DSUs only following termination of Board service by way of retirement, non-re-election as a director, resignation or death. Upon redemption of DSUs, the Company will issue to the participant common shares of the Company equal to the number of DSUs to be redeemed. |
| · | A separate notional account is maintained for each participant under the DSU Plan. Each such account will be credited with DSUs issued to the participant from time to time by way of a bookkeeping entry in the books of the Company. The DSUs credited to the participant’s account will be cancelled as of the applicable redemption date and following redemption of all DSUs credited to the participant’s account, such participant’s account will be closed. |
| · | No rights under the DSU Plan and no DSUs credited pursuant to the provisions of the DSU Plan are assignable or transferable by any participant other than pursuant to a will or by the laws of descent and distribution. |
| · | Under the DSU Plan, the Board may from time to time in its absolute discretion amend, modify and change the provisions of the DSU Plan or any DSUs issued pursuant to the DSU Plan, provided that any amendment will: |
| · | not adversely alter or impair any DSU previously credited without such participant’s consent in writing except as permitted by the adjustment provisions in the DSU Plan; |
| · | be subject to any regulatory approvals including, where required, the approval of the TSX; |
| · | be subject to shareholder approval in accordance with the rules of the TSX in circumstances where the amendment, modification or change to the DSU Plan or DSU would: |
| (i) | allow for the assignment or transfer of any right under the DSU Plan or a DSU credited pursuant to the provisions of the DSU Plan other than as provided for under the assignability provisions in the DSU Plan; |
| (ii) | increase the fixed maximum number of common shares which may be issued pursuant to the DSU Plan; or |
| (iii) | amend the amendment provisions of the DSU Plan; and |
| · | not be subject to shareholder approval in circumstances (other than those listed in the paragraph immediately above), including, but not limited to, circumstances where the amendment, modification or change to the DSU Plan or DSU would: |
| (i) | be of a “housekeeping nature”, including any amendment to the DSU Plan or a DSU that is necessary to comply with applicable law or the requirements of any regulatory authority or stock exchange and any amendment to the DSU Plan or a |
| DSU to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein; |
-67-
| (ii) | introduce features to the DSU Plan that would permit the Company to, instead of issuing common shares from treasury upon the redemption of the DSUs, retain a broker and make payments for the benefit of participants to such broker who would purchase common shares through the facilities of the TSX for such participants; |
| (iii) | introduce features to the DSU Plan that would permit the Company to, instead of issuing common shares from treasury upon the redemption of the DSUs, make lump sum cash payments to participants; |
| (iv) | change the application of the adjustment provisions of the DSU Plan; or |
| (v) | change the eligible participants under the DSU Plan. |
A copy of the DSU Plan is available upon request in writing to the Chief Financial Officer of the Company at 30 Worcester Road, Toronto, Ontario, M9W 5X2.
The 110,000 common shares that are currently authorized under the DSU Plan represent approximately 0.6%0.5% of the Company’s common shares issued and outstanding as at May 10, 2011.February 18, 2014. The total of 10,25043,040 DSUs that have been authorized for issuance for the period ended November 30, 20112013 represent common share rights that comprise less than 0.1%approximately 0.2% of the common shares issued and outstanding as at May 10, 2012.February 18, 2014. As at May 10, 2012, 15,495February 18, 2014, 45,365 DSUs have been issued under the DSU Plan.
| Major Shareholders and Related Party Transactions |
A. | Major Shareholders |
-68-
There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.
No holder of common shares has different voting rights from any other holders of common shares.
As at MarchDecember 31, 2012,2013, there were a total of 393353 holders of record of our common shares, of which 86251 were registered with addresses in Canada holding in the aggregate approximately 32% of our outstanding common shares, 53 were registered with addresses in the United States holding in the aggregate approximately 59.53%68% of our outstanding common shares, and 49 were registered with addresses in other nations holding in the aggregate less than 1% of our outstanding common shares. We believe that the number of beneficial owners of our common shares is substantially greater than the number of record holders, because a large portion of our common shares are held in broker “street names”.
B. | Related Party Transactions |
As at November 30, 20112013 and February 29, 2012,18, 2014, we had an outstanding related party payable to Dr. Isa Odidi and Dr. Amina Odidi, our principal stockholders, directors and executive officers, in the amount of approximately $0.8 million.$759,564. Repayments of the related party loan are restricted under the terms of the loan such that the principal amount thereof shall be payable when payment is required solely out of (i) revenues earned by IPC Corp.Corp, following the effective date of October 22, 2009 (“effective date”), and/or proceeds received by any Intellipharmaceutics companyIPC Corp or its affiliates from anythe offering of its securities after the effective date (other than the proceeds from the transactiontransactions completed onin February 1, 2011, March 2012, March 2013 and on March 15, 2012) following the effective dateJuly 2013), and/or amounts received by IPC Corp.Corp for scientific research tax credits received after the effective date for research expenses of IPC Corp. incurred before the effective dateCorp and (ii) up to C$800,000 of the Net Cash from the Vasogen transaction (as defined in the IPC Arrangement Agreement). During the year ended November 30, 2011, the related party loan2013, no principal repayment was decreased by $801,551made and interest payments of $16,640 (C$817,822) and an interest payment of $163,099 (C$166,410)17,671) in respect of the promissory note was paidwere made by us in accordance with the termsIPC Arrangement Agreement. In November 2013, we entered into an at-the-market equity distribution agreement pursuant to which we may, from time to time, sell up to an aggregate of $16.8 million (or such lesser amount as may be permitted under applicable securities laws and regulations) of our common shares; we plan to apply up to approximately $0.8 million of any offering proceeds therefrom in payment of the IPC Arrangement Agreement.related party loan. During the year ended November 30, 2013, no sales of our common shares were made under the at-the-market offering. As of the date of this annual report, 1,312,100 of our common shares have been sold under the at-the-market offering for net proceeds to us of $4,808,054, and no proceeds from the sales of our common shares under the at-the-market offering have been used to repay this loan.
In addition, on January 10, 2013, we completed a private placement financing of an unsecured convertible debenture in the aggregate principal amount of $1.5 million, which will mature January 1, 2015. The debenture bears interest at a rate of 12% per annum, payable monthly, is pre-payable at any time at the option of the Company, and is convertible at any time into 500,000 common shares at a conversion price of $3.00 per common share at the option of the holder. Drs. Isa and Amina Odidi, our principal stockholders, directors and executive officers provided us with the $1.5 million of the proceeds for the debenture.
Since the beginning of the Company’s preceding three financial years to the date hereof, other than discussed above in this item 7, there have been no transactions or proposed transactions which are material to the Company or to any associate, holder of 10% of the Company’s outstanding shares, director or officer or any transactions that are unusual in their nature or conditions to which the Company or any of its subsidiaries was a party.
A. | Consolidated Statements and Other Financial Information |
Reference is made to “Item 18. Financial Statements” for the financial statements included in this annual report.
-69-
Legal Proceedings and Regulatory Actions
From time to time, the Companywe may be exposed to claims and legal actions in the normal course of business, including those which we may be initiated byinitiate. As of the Company. As at April 30, 2012, there were nodate of this annual report, we are not aware of any pending or threatened litigation claims outstanding other thanoutstanding.
Pursuant to an arrangement agreement between Vasogen and Cervus LP (“Cervus”) dated August 14, 2009 (the "Cervus Agreement"), Vasogen and a Vasogen subsidiary (“New Vasogen”) entered into an indemnity agreement (the "Indemnity Agreement"), which became an obligation of the ones describedCompany as of October 22, 2009. The Indemnity Agreement is designed to provide Cervus with indemnification for claims relating to Vasogen's and New Vasogen's business that are brought against Cervus in the following paragraphs.
Dividend Policy
The Company has not paid, and has no current plans to pay, dividends on its common shares. We currently intend to retain future earnings, if any, to finance the development of our business. Any future dividend policy will be determined by the Board of Directors, and will depend upon, among other factors, our earnings, if any, financial condition, capital requirements, any contractual restrictions with respect to the payment of dividends, the impact of the distribution of dividends on our financial condition, tax liabilities, and such economic and other conditions as the Board of Directors may deem relevant.
B. | Significant changes |
No significant changes occurred since the date of our annual consolidated financial statements included elsewhere in this annual report.
Not Applicable, except for Item 9A (4)9.A.4 and Item 9C.9.C.
Our common shares are currently listed on NASDAQ and on the TSX under the symbols “IPCI” and “I”, respectively. Our shares began trading on October 22, 2009, when the transaction with Vasogen was completed. The following table indicates, for the relevant periods, the high and low closing prices of our common shares on NASDAQ and on the TSX:
| NASDAQ (U.S.$) | TSX (C$) | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| Annual | ||||||||||||||||
| 2011 | 6.12 | 2.30 | 6.05 | 2.21 | ||||||||||||
| 2010 | 5.05 | 1.41 | 5.36 | 1.50 | ||||||||||||
| 2009 (partial) | 5.00 | 1.40 | 6.10 | 1.52 | ||||||||||||
Quarterly | ||||||||||||||||
| 2012 | ||||||||||||||||
| First quarter | 3.82 | 2.41 | 3.55 | 2.53 | ||||||||||||
| 2011 | ||||||||||||||||
| Fourth quarter | 3.50 | 2.66 | 3.59 | 2.43 | ||||||||||||
| Third quarter | 4.35 | 2.50 | 4.20 | 2.21 | ||||||||||||
| Second quarter | 5.25 | 2.87 | 5.04 | 2.76 | ||||||||||||
| First quarter | 6.12 | 2.30 | 6.05 | 2.41 | ||||||||||||
| 2010 | ||||||||||||||||
| Fourth quarter | 3.26 | 2.11 | 3.35 | 2.20 | ||||||||||||
| Third quarter | 3.30 | 2.05 | 3.39 | 2.15 | ||||||||||||
| Second quarter | 5.05 | 1.45 | 5.36 | 1.50 | ||||||||||||
| First quarter | 2.63 | 1.41 | 2.66 | 1.50 | ||||||||||||
| 2009 | ||||||||||||||||
| Fourth quarter (partial) | 5.00 | 1.40 | 6.10 | 1.52 | ||||||||||||
| NASDAQ (U.S.$) | TSX (C$) | ||||
| Annual | High | Low | High | Low | |
| 2013 | 6.46 | 1.50 | 6.70 | 1.55 | |
| 2012 | 3.82 | 1.88 | 3.55 | 1.81 | |
| 2011 | 6.12 | 2.30 | 6.05 | 2.21 | |
| 2010 | 5.05 | 1.41 | 5.36 | 1.50 | |
| 2009 (partial) | 5.00 | 1.40 | 6.10 | 1.52 | |
| Quarterly | |||||
| 2013 | |||||
| Fourth quarter | 6.46 | 1.63 | 6.70 | 1.72 | |
| Third quarter | 3.72 | 1.50 | 3.84 | 1.55 | |
| Second quarter | 2.23 | 1.57 | 2.35 | 1.60 | |
| First quarter | 2.59 | 1.72 | 2.56 | 1.77 | |
| NASDAQ (U.S.$) | TSX (C$) | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| Most recent 6 months | ||||||||||||||||
| April 2012 | 2.99 | 2.64 | 2.89 | 2.62 | ||||||||||||
| March 2012 | 3.15 | 2.75 | 3.38 | 2.61 | ||||||||||||
| February 2012 | 3.82 | 2.95 | 3.55 | 3.00 | ||||||||||||
| January 2012 | 3.10 | 2.41 | 3.10 | 2.53 | ||||||||||||
| December 2011 | 3.15 | 2.51 | 3.25 | 2.55 | ||||||||||||
| November 2011 | 3.50 | 2.66 | 3.59 | 2.75 | ||||||||||||