Intellipharmaceutics: Drug Delivery Specialist With Potential FDA Approval And Partnership Catalysts

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Intellipharmaceutics (NASDAQ:IPCI) is focused on the development of generic and specialty drugs based on the Company's patented Rexista abuse-deterrent and Hypermatrix controlled-release drug delivery technology platforms. IPCI currently has six abbreviated New Drug Applications (ANDAs) pending at FDA for a targeted list of generic drugs in addition to a novel abuse-deterrent formulation of the widely used opiate pain drug OxyContin.

Below is a summary of the Company's six pending ANDAs (#1-6) referenced by the brand drug name (with the potential for two additional ANDA filings by year-end) and one proprietary drug candidate (#7):

1.) Focalin XR -- IPCI has a strategic alliance (10-year profit sharing agreement that begins with first sales of the drug) with Par Pharma (NYSE:PRX), which agreed to a buyout by private equity firm TPG last month in a $1.9 billion deal. IPCI has settled patent litigation with Novartis, Elan and Celgene for an expected product launch during 4Q12 (pending FDA approval-the patent infringement litigation settlement allows for potential generics for the four lowest strengths of drug in October so FDA typically approves generics by the time they are able to be marketed to lower the costs of drugs) for this ANDA, which accepted for review by FDA in August 2007 seeking approval for the four lowest strengths of the drug (5, 10, 15 and 20mg) which represent the vast majority (90%) of sales for this ADHD drug.

In addition, IPCI filed an amended ANDA seeking approval of the 30mg strength of Focalin XR in December 2010. IPCI has modeled for potential revenue of $17-57 million (NYSE:M) to the PAR/IPCI partnership based on 50-70% discount rates and a 10-20% market share for Focalin XR, which posted $572M in annual brand sales. On 8/13/12, Mylan (NASDAQ:MYL) received tentative FDA approval for the 30mg strength of Focalin XR, suggesting that the FDA is possibly close to an approval decision for the four lowest strengths of the drug for IPCI/PAR in the near future, although no other approvals for generic Focalin XR have been announced to date and Teva Pharma (NYSE:TEVA) is a potential competitor for generic versions of the four lowest strengths.

The Company has conducted the required bio-equivalence studies for Focalin XR which has a unique profile that results in two peaks of the drug that is typically dosed in the morning, resulting in an initial peak of drug levels in the morning followed by a second peak of drug levels later in the afternoon which is meant to suit the school schedule for children who commonly use the drug to allow for peak drug activity at the start of school and after school.

2.) Effexor XR - The ANDA for this anti-depressant drug was accepted by FDA in JAN10 with patent litigation settled for a potential market launch at the time of approval and the drug is currently not partnered. Effexor XR is an $884M annual sales opportunity based on both brand and generic versions and IPCI has modeled for a market opportunity of $5-27M for itself and a potential partner. Since this ANDA has been pending for over 30 months, which is about the average generic drug review time for FDA; the drug represents a potential approval catalyst during 2H12 or by early next year.

3.) Protonix is used for the treatment of acid reflux (GERD) and ulcers to greatly reduce acid production in the stomach with annual brand and generic sales of $644M, representing a projected market opportunity of $4-19M for IPCI and a potential partner for this ANDA which was accepted by FDA in JUN10 with a market launch possible at the time of FDA approval.

4.) Glucophage XR is a widely used extended-release version of type 2 diabetes drug metformin with annual brand and generic sales of $333M, representing a projected market opportunity of $3-17M for IPCI and a potential partner for this ANDA which was accepted by FDA in AUG10 with a market launch possible at the time of FDA approval, representing another potential approval catalyst during 2H12 or by early next year given over a dozen generic drug companies currently market the drug which is well characterized from a generic equivalence standpoint.

5.) Seroquel XR is a CNS drug used for major depression, schizophrenia and bipolar disorder with annual brand sales of $1 billion, representing a projected market opportunity of $8-50M for IPCI and a potential partner for this ANDA which was accepted by FDA in FEB11 with a recently announced patent litigation settlement with AstraZeneca (NYSE:AZN) allowing for a potential generic product launch on 11/1/16 if FDA approved.

6.) Lamictal XR is an extended-release seizure drug with annual brand sales of $219M, representing a projected market opportunity of $7-23M for IPCI and a potential partner for this ANDA which was accepted by FDA in SEP11.

7.) Rexista Oxycodone XR -- IPCI has completed a Phase 1 proof-of-concept study for this abuse-deterrent version of OxyContin with ongoing manufacturing scale-up to prepare batches of the drug for testing in several planned Phase 1 clinical trials. IPCI projects a much larger potential market opportunity for this proprietary drug given $2.5 billion in annual sales of controlled-release oxycodone products such as OxyContin. The Company plans to conduct several Phase 1 clinical trials (e.g. single and multi-dose studies) using clinical manufacturing (cGMP) batches of the drug with a goal of securing a partnership for late-stage clinical testing, which will be much quicker and less expensive through the 505(b)(2) NDA pathway as a novel formulation of an approved drug.

Below is a summary of the Company's most recently reported highlights for 2Q Fiscal Year 2012 (FY12) for the three months ending 5/31/12:

- IPCI reported 17.8 million shares of common stock outstanding and 26.3M on a fully diluted basis (including 2.8M options exercisable at weighted average price of $3.62/share plus 4.6M warrants exercisable at $4.90/share) with over one-third (34%) owned by insiders with a low estimated float of less than 10M shares (be aware that this results in low average trading volumes and volatile price action so always use strict limit orders if trading the stock).

- As of 5/31/12, IPCI reported $4.9M in cash and equivalents with ($1.8M) in cash used to fund operations during 2QFY12 compared to ($1.9M) during 2QFY11.

- On 3/15/12, IPCI closed a registered direct offering for the sale of 1.8M shares of common stock to US institutional investors @$2.75/share for net proceeds of $4.2M.

While I typically do not track generic drug companies closely given the highly competitive, low pricing and low profit margins associated with the space; stocks such as IPCI which have a targeted approach and proprietary drug delivery technology platform to develop both specialty and generic drugs with a focus on a specific niche (i.e. controlled-release drugs) present much lower risk in terms of receiving FDA approval although the generic drug review process is currently very long typically taking 2+ years on average for ANDA decisions.

IPCI has a low float, low cash burn rate and raised money earlier this year @$2.75/share so there is no urgent need for cash, although the potential for dilution is always there given a shelf filing that is still active. However, the previous sale was conducted directly to US institutional investors earlier this year and resulted in minimal dilution (approx. 10% with no warrants) suggesting the Company is fiscally disciplined and shareholder-oriented, which makes sense given the high level (34%) of insider ownership in the Company.

The small size of the deal also suggests that IPCI is confident of receiving FDA approvals for some (i.e. potentially Focalin XR, Gluophage XR and Effexor XR) and/or additional partnerships to provide revenue and potential upfront cash, respectively, during 2H12 through early next year. The Company has settled patent infringement litigation for all six pending ANDAs and several have been pending for 2+ years so the potential for approval and/or partnership catalysts in the coming months is excellent and given the very low cash burn rate of less than $2M per quarter; IPCI will not require huge amounts of sales to reach profitability.

The main risk factor for IPCI is continued delays at FDA in receiving ANDA approvals given the very long review time by the generic drug division in addition to a highly competitive, low-margin business for generic drugs. However, I believe the Company will receive several approvals over the remainder of 2012 into early 2013 given the length of time the ANDAs have been pending at FDA and in the case of Focalin XR given the tentative approval for Mylan for the highest strength (which will not be launched until 3Q13) and the lack of any approvals for the four lowest strengths of the drug which can be launched in October (pending FDA approval) based on the patent infringement litigation settlement.

Disclosure: I am long IPCI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.