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New Prescriptions For Easy-to-swallow Drugs

|Includes: IntelGenx Technologies Corp. (IGXT)

Because more than 50% of currently marketed drugs are given as tablets or capsules, compliance has been an issue, mainly due to the number of tablets to be taken, the need to take water, poor taste, and difficulty to swallow. The innovator drug companies such as Pfizer, Merck, Abbott (I know I worked there) have never really paid much attention on how many pills you needed to take every day. Instead the race to be first to market has left patients scrambling with side effects and multiple other problems too long to list. For more than a decade, drug delivery technology companies have developed smarter, more efficient, and convenient drugs that really improve the life of those who need to take drugs on a regular basis. Reformulated drugs mean improved efficacy, safety and convenience.

IntelGenx Technologies Corp. (OTCPK:IGXT) is a drug delivery company engaged in developing a dozen reformulated drugs using novel delivery technologies. Founded in Montreal (Canada), the company has developed three core technologies: VersaFilm, VersaTab and AdVersa. These technologies have produced two approved products and ten others (see table) at different stages of development.

The business model is low cost; develop a product until proof of concept, find a partner and collect upfront payments, sales milestones and royalties. The advantages for developing reformulated drugs are that it takes 1-2 years from bench to partnership status, and less than $1m for each. Clinical development costs are very low because in most cases, only phase 1 studies are required. Using the 505(b)(2) regulatory approval process to obtain FDA approval, the company needs to complete two human clinical trials (one pilot and one pivotal) and then file for regulatory approval, which is usually achieved in less than one year.

Even though there are over 100 drug delivery companies worldwide, some have technologies that others don`t. Most companies have only been able to work on one, two or three products at the same time. IGXT has been much more productive and successful than others. The success of any reformulated drug is about market timing, end-user cost and efficacy/safety benefit.

IGXT's most differentiated technology is certainly the wafer or oral film (VersaFilm). The film technology has been around for more than 20 years; however fewer than five companies in the world have succeeded in producing only OTC products (allergy, mouth freshener). Film technology allows drugs to be released "almost instantly" in the buccal area where small blood vessels provide a direct conduit to the bloodstream for drugs to be absorbed. This technology is important for a number of treatments where a fast onset of action is needed such as migraine. Migraine is a US$4bn worldwide market widely lead by triptans. All the drugs (branded and generics) sold are tablet formulations which require 15 minutes or more to show any clinical effect. By then symptoms would be so severe that patients might not be able to work or function until symptoms disappear. If you know someone who suffers from migraines then you know that time is of the essence. The migraine film developed by IGXT achieves bioavailability within 5 minutes which is a good reason why this could be a strategic advantage. I believe this product offers a premium advantage to patients and is convenient to use because you don't need water to take the drug. The instant delivery film has distinct advantages over existing fast dissolving oral tablets, which make it the application system of choice for indications requiring an immediate onset of action, like migraine, motion sickness, nausea, erectile dysfunction, or seasonal allergies.

In tablet formulation, the company has two technologies (VersaTab and AdVersa) that produced two approved drugs: prenatal vitamin and Forfivo (a high-dose version of Valeant's Wellbutrin XL, the only 450mg in the world).

Some key points to consider about IGXT:

· All of the drugs are developed based on the two clinical trials: pilot and pivotal bioavailability, which usually cost less than $1m each.

· 10 products 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.

· IGXT is developing drugs and therefore will not engage in high expenses such as marketing and sales; it prefers to partner.

· The film technology is offering major advantages in treating a wide range of diseases.

Time to market (from research to commercial stage) is usually less than 3 years: from lab to market

Company is expected to become profitable in 2013

With management actually having a large stake (~25%) in IGXT's success, versus a large salary, management is sending a strong message of confidence in its own company to the market.

I have been tracking the company for the last five years and I must say they have done some very good things with very little money. Having raised ~$13m since 2007 and with expectations to break even in the next 12 months, I think very few companies have accomplished so much with so little.

If everything goes well with the company's tech platform, and they are able to attract the right commercial partners, I think the company could achieve revenues of $50m in the next three years. With only a dozen people in place and 50m shares outstanding , this means a high EPS. The market for reformulated drugs has produced significant success, if you can remember what Biovail did with Wellbutrin achieving end-user revenues of $1.5bn and collecting 25-30% in revenues.

Success does not have to be quiet, it needs to be highlighted.

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