Intelgenx Leadership Change And CRL Response: Why I'm Still Bullish

Aug. 4.14 | About: IntelGenx Technologies (IGXT)


CRL response for Migraine product will take longer than expected, however, the company has identified a new API supplier if needed.

Recent CEO change left shareholders blinded, however, the company appears to have a very able interim CEO.

Manufacturing division will help to improve margins and quality control.

I previously wrote an article informing the investment community about the potential at Intelgenx (OTCQX:IGXT). Since then the stock has, unfortunately, been on a constant slide. The slide can be largely attributed to two different events: an unexpected leadership change, and a conference call that was met with mixed reactions. With this in mind I wanted to update by providing analysis on the leadership change and add my thoughts on the conference call.

Leadership Change

Intelgenx investors were caught blindsided when the company announced the resignation of former CEO Khosla. This unexpected news caused for investors to quickly sell off the stock. The only bright part of the news is that it has a very able CEO in the interim in Dr. Zerbe. Dr. Zerbe previously served as CEO of Intelgenx until the end of December 2013. He knows the business and should be able to keep the company on course until a permanent replacement can be agreed upon.

Long term, however, is where things get tricky. I am looking for the company to find a person who has had previous CEO experience, and preferably a CEO who has big pharma connections. Even more importantly, though, this person is going to have to be able to continue to execute on the long term strategy. The new CEO having experience launching drugs would be a positive. The new CEO will have the resources he or she needs for the future, with a relatively net loss of $442 thousand last quarter, and had over $5.16 million in cash. With this in mind, the company will likely have more than enough cash to see them through the CRL response filing for the migraine product, and investors do not need to worry about dilution.

Conference Call Takeaways

Intelgenx was able to update investors via a conference call. There are many takeaways for investors that were noteworthy. We came to understand that Intelgenx is planning on creating a commercial manufacturing division for the manufacture of film products. They expect to help manufacture for Par Pharmaceuticals, which could potentially be big business for Intelgenx. Not only would this help to increase margins and solidify their relationship with Par, it would also add a new source of revenue. This agreement is, however, preliminary. We do not yet know how far along Intelgenx is in being able to get its new manufacturing facility online. Regardless, the addition of a manufacturing capacity for Intelgenx should also help the company to solve recent supply problems. Investors should note that this CRL represents the second time that Intelgenx had manufacturing problems. Hopefully moving some of the manufacturing in-house will eliminate these problems and improve margins. Not to mention improve investor confidence in the ability of management to get drugs approved. Investors will recall that the company had problems with its Forfivo XL product regarding a third party supplier as well, which similar to this case caused a delay in FDA approval. Through bringing manufacturing in house, it is likely that Intelgenx will be able to implement a higher amount of quality control and thus help to eliminate the risk of FDA rejections based upon a supplier issue.

More importantly, we received updates regarding Intelgenx's migraine product. The company is working with its API supplier to resolve the issues with the FDA. The company has also identified another API supplier should it be needed. This is important as it allows for us to develop a worst case scenario timeline. The company acknowledged that it will take a while to run the FDA required tests and manufacturing batches and finds it likely that the product would obtain FDA approval at the second half of 2015. If the company is able to work with its current API supplier and resolve the FDA issues, then this timeline will obviously be accelerated as they will not need to bring an additional company up to speed for approval. This is not good news for investors, as it appears as though it will take longer than previously anticipated for the company to clean up its issues. There was a bright piece of news. The company plans on submitting a marketing authorization for Europe by the end of this quarter. This represents a positive catalyst for shareholders and should help to prop up the share price in the near term. Despite this delay, I am still bullish. While it is annoying for shareholders that there is going to be a delay in FDA approval, the fact that the only issues cited by the FDA were manufacturing related, leads me to believe that Intelgenx will be successful in getting the product FDA approved. Also, by having a timeline for the European filing, investors now have a catalyst to look forward to, and a catalyst that should help. In the meantime I will be looking for Intelgenx to hopefully sign on a partner for the product.

Investors also got some welcome news regarding the Par Pharmaceuticals partnership. Intelgenx, as we know, submitted the Suboxone ANDA on July 2013, and they announced that they expect to file the ANDA for the second Par project in the second quarter of 2015. At this time we do not know anything about the project, except for the fact that it is partnered with Par Pharmaceuticals. This product has the potential to generate substantial revenue for Intelgenx and should the commercial manufacturing be online by that time, it will only help to increase margins. We also learned that Par severed their relationship with their other film product company. This is bullish for Intelgenx investors as Par still clearly believes in Intelgenx's products and seems to believe that they are the superior way to go in the film space. The addition of an ANDA filing in 2015 should put another catalyst on the company's radar and more importantly once we know what drug the ANDA is for, we will be able to put a better value on the product, and on Intelgenx's pipeline as a whole.

While a lot of the news received for investors looked negative at the outset, it appears as though the company is well aligned for longterm success. I fully restate my price target and think that it may need to be even a little higher due to the potential of the manufacturing division, which I did not account for in my original article. I also do not believe that I accounted adequately for the previous ANDA filing, so that would also have to move my price projection upwards slightly. At these prices Intelgenx represents an even more compelling long-term buy and a compelling risk reward.

Disclosure: The author is long IGXT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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