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IntelGenx - Moving To The Next Stage

|Includes:IntelGenx Technologies Corp. (IGXT)

The Event- Forfivo XL is now officially launched in the US

Forfivo XL is the first high-dose 450mg bupropion with a controlled release delivery formulation (once-a-day). The event is important for IntelGenx because it is first major product launch in the US market. I don't expect any revenues outside the US.

Forfivo XL is certainly not a generic and therefore many people will be happy to know that. I also believe the recent decision by the FDA to pull the Teva/ Impax generic Wellbutrin XL 300mg from the market for non-bioequivalence could be a positive to Forfivo XL. I expect doctors to be more cautious in prescribing generics because they may not provide the expected benefits for the patients. There are certain drugs that people don't want to play with and they relate to CNS drugs. In addition the FDA is being more aggressive on closing down internet pharmacies because they are selling a number of non-equivalent dosages. Therefore bringing a novel drug such as Forfivo XL 450mg will be appealing for people who will expect quality. The Forfivo XL single dose bioequivalence study completed some time ago proved to be bio-equivalent to 3 Wellbutrin XL150mg tablets once daily. This will be important for physicians who don't want to offer high doses to patients and expect compliance. In many cases, patients stop taking medications because they feel they are taking too many pills every day. In a recent study conducted in the US, 49% said they had forgotten to take a prescribed medicine; 29% had stopped taking a medicine before the supply ran out; and 24% had taken less than the recommended dosage. So it is better to take 1 pill than 3 pills.

The Big Picture

According to various market research companies, the US depression therapeutics market is roughly US$4bn in 2011 and is expected to grow at double digit reaching US$8bn by 2018. Even though there are 20 different molecules being sold by many companies, doctors are usually concerned about what they know and have experience with. For Forfivo, the name of the game to succeed in the US is to show patient benefit at an attractive pricing. While we estimate that ~80% of the market will be reimbursed with private insurance, we estimate the balance to be covered by Medicaid and Medicare with a small portion of paying patients. This implies a pricing strategy is of critical importance in this crowdie market. On a efficacy basis, comparative studies have demonstrated the equivalency of bupropion to Paxil (paroxetine), Lexapro, Zoloft and Prozac as antidepressants. Given its favorable efficacy and safety properties, bupropion still sells in large quantities: in 2011, total branded and generic sales totaled US$745m or about 3% of total prescriptions in volume. Bupropion has also lower side effects than most popular depression drugs. Forfivo is likely to be targeting the highest prescribers among the 45,000 psychiatrists in the US. Given that probably a portion of patients will likely require at least 450mg of buprorion, the primary market is slightly reduced. Don't expect lots of revenues in 2012 but rather 2013 where they will be finally profitable. I have seen recent market studies that also exemplifies demand by psychiatrists to use a higher dose drug when available. In the case of depression, a good portion of patients do require more than 450mg of Wellbutrin XL for an everyday treatment. In one study that I have seen, 98% of psychiatrists felt that there was a need for an higher dose because it increase compliance and 40% would recommend Wellbutrin XL because that is the drug they prefer to use for treating MDD.

The Marketing partner

Edgemont Pharmaceuticals, a private company, may be not a household name but with close to 200 reps and senior management with big Pharma experience will be targeting specialists treating depression. With a recent financing of $15m completed earlier in the year and growing revenues from their first product launched late last year, also a CNS product (high-dose fluoxetine or Prozac), we think this commercial strategy could be really effective.

One Product Valuation Is Higher Than The Whole Company

Just for Forfivo, we estimate the NPV at $58m, so how do I come up with this number. First let's look at the agreement. IntelGenx received a US$1m upfront payment +another US$4m for the launch + commercial milestones of up to $23.5m (if they achieve certain levels) + tiered double-digit royalties.

What could be the peak sales be in three years:

Already 1.5-2.0m patients on Bupropion

X 15-25% on high doses

X $600-900 yearly price range

X 20-25% market share

X18-22% royalty range

= Median range for revenues of ~$70m and royalty revenues for IGXT of $15m.

NPV= $58m using a 15% discount rate

For a company with a market cap of $25m and lots of undiscovered value, it's worth looking at.

Investment thesis

I think the next $100m product that is expected to be launched in 2014 is the reformulated branded drug Maxalt (Merck) using the proprietary and unique IntelGenx' oral film. Convenience and rapid onset of action will certainly be attractive not only for current migraine patients using Maxalt but also patients on other triptans (Imitrex, Relpak, Zomig, etc...) which control the US$4bn worldwide market. The drug is already partnered with RedHill Biopharma, so the financial risk is very low.

The Stock Price

Low business risk, diversified portfolio and the company should be profitable one year after the launch of Forfivo XL.

IGXT has also 9 other reformulated human drugs in development to hit the market between now and 2016. Compared to an approval rate of ~30% for New Chemical Entities (preclinical to market), reformulated drugs get approved in more than 90% of cases. All of the drugs are developed based with two clinical trials: pilot and pivotal bioavailability, which usually cost less than $1m each. Sorry I forgot to mention, maybe we should add the other animal drugs being developed for which investors have not pegged any value but I don't want to overwhelmed our readers. I would expect the stock price continue to improve given the positive technical trends.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: IGXT