Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
INTELLIPHARMACEUTICS
INTERNATIONAL INC.
(Exact name of
Registrant as specified in its charter)
Not Applicable
(Translation of
Registrant’s name into English)
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Canada
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2834
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Not Applicable
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(State
or other jurisdiction of incorporation or
organization)
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer Identification Number)
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Intellipharmaceutics
International
Inc.
30 Worcester Road
Toronto, Ontario
Canada, M9W 5X2
(416)
798-3001
(Address,
including zip code, and telephone number, including area code, of
Registrant’s principal executive offices)
Corporation Service Company
1090
Vermont Avenue N.W.
Washington, D.C. 20005
(800)
927-9800
(Name,
address, and telephone number of agent for service)
_________________________
With copies to:
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Richard DiStefano, Esq.
Brian North, Esq.
Buchanan Ingersoll & Rooney PC
640 Fifth Avenue
New York, New York 10019-6102
Telephone: (212) 440-4455
Facsimile: (212) 440-4401
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Tina M. Woodside, Esq.
Gowling WLG (Canada) LLP
Suite 1600, 1 First Canadian Place
100 King Street West
Toronto, Ontario M5X 1G5
Telephone: (416) 369-4584
Facsimile: (416) 862-7661
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Jeffrey Fessler, Esq.
Sheppard Mullin Richter & Hampton LLP
30 Rockefeller Plaza, 39th Floor
New York, New York 10112
Telephone: (212) 653-8700
Facsimile: (212) 653-8701
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Approximate date of commencement of proposed
sale to the public: From time to time after the effective
date of this registration statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following
box. ☐
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
Indicate by check
mark whether the registrant is an emerging growth company as
defined in Rule 405 of the Securities Act of 1933.
Emerging growth
company ☐
If an
emerging growth company that prepares its financial statements in
accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards†
provided pursuant to Section 7(a)(2)(B) of the Securities
Act. ☐
†
The term “new or revised financial accounting standard”
refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5,
2012.
CALCULATION OF REGISTRATION FEE
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Title
of Each Class of Securities To Be Registered
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Proposed
Maximum Aggregate Offering Price (1)(2)(3)
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Amount
of Registration Fee(2)
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Units, each Unit
consisting of one common share, no par value (“Common
Shares”), and one warrant (“Warrant”) to purchase
one Common Share(3)
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$15,000,000
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$1,867.50
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(i) Common
Shares included in the Units(4)
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—
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—
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(ii) Warrants
included in the Units(4)
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—
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—
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Pre-Funded Units,
each Pre-Funded Unit consisting of one pre-funded warrant
(“Pre-Funded Warrant”) to purchase one Common Share and
one Warrant to purchase one Common Share(3)
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—
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—
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(i) Pre-Funded
Warrants included in the Pre-Funded Units(4)
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—
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—
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(ii) Warrants
included in the Pre-Funded Units(4)
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—
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—
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Common Shares
underlying Pre-Funded Warrants included in the Pre-Funded
Units(3)
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—
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—
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Underwriter’s
Warrants (5)
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—
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—
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Common Shares
issuable upon exercise of Underwriter’s
Warrants(6)
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$1,125,000
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$140.06
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Total
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$16,125,000
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$2,007.56
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(1) Estimated
solely for purposes of computing the amount of the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as
amended (the “U.S. Securities Act”). Includes the
aggregate offering price of additional Common Shares and/or
Warrants to purchase Common Shares that the underwriter has the
right to purchase.
(2) Pursuant
to Rule 416 under the U.S. Securities Act, (i) the securities
being registered hereunder include such indeterminate number of
additional Common Shares as may, from time to time, become issuable
by reason of stock splits, stock dividends, recapitalizations or
other similar transactions and (ii) if prior to completion of
the distribution of the securities covered hereby, all the
securities of a class which includes the registered securities are
combined by a reverse stock split into a lesser amount of
securities of the same class, the amount of undistributed
securities of such class deemed to be covered hereby shall be
proportionately reduced.
(3) The
proposed maximum aggregate offering price of the Units proposed to
be sold in the offering will be reduced on a dollar-for-dollar
basis based on the offering price of any Pre-Funded Units offered
and sold in the offering, and the proposed maximum aggregate
offering price of the Pre-Funded Units to be sold in the offering
will be reduced on a dollar-for-dollar basis based on the offering
price of any Units sold in the offering. Accordingly, the proposed
maximum aggregate offering price of the Units and Pre-Funded Units
(including the Common Shares issuable upon exercise of the
Pre-Funded Warrants included in the Pre-Funded Units), if any, is
$15,000,000.
(4) No
additional registration fee is payable pursuant to Rule 457(i)
under the U.S. Securities Act.
(5) No
additional registration fee is payable pursuant to Rule 457(g)
under the U.S. Securities Act.
(6)
Represents warrants to purchase a number of Common Shares equal to
6% of the Common Shares sold in this offering (including the number
of Common Shares issuable upon exercise of the Pre-funded Warrants)
at an exercise price equal to 125% of the offering price per
unit.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
U.S. Securities Act or until
this Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to Section
8(a) of the U.S. Securities Act, may determine.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the Securities and
Exchange Commission declares our registration statement effective.
This preliminary prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
Subject to completion, dated September 20, 2018
PRELIMINARY PROSPECTUS
INTELLIPHARMACEUTICS INTERNATIONAL INC.
Up to Units (each Unit contains one Common Share and one Warrant to
purchase one Common Share)
Up to Pre-Funded Units (each
Pre-Funded Unit contains one Pre-Funded Warrant to purchase one
Common Share and one Warrant to purchase one Common
Share)
(Up to
Common Shares Underlying the Warrants) and
(Up to
Common Shares Underlying the Pre-Funded Warrants)
We are
offering up to Units (“Units”), each Unit consisting of
one common share, no par value (“Common Shares”), and
one warrant (the “Warrant”) to purchase one Common
Share. Each Warrant contained in a Unit has an exercise price of $
per Common Share. The Warrants contained in the Units will
be exercisable immediately and will expire . We are
also offering the Common Shares that are issuable from time to time
upon exercise of the Warrants contained in the Units.
We are
also offering to each purchaser whose purchase of Units in this
offering would otherwise result in the purchaser, together with its
affiliates and certain related parties, beneficially owning more
than 4.99% of our outstanding Common Shares immediately following
the consummation of this offering, the opportunity to purchase, if
the purchaser so chooses, pre-funded units (“Pre-Funded
Units”), each Pre-Funded Unit consisting of one pre-funded
warrant (“Pre-Funded Warrant”) to purchase one Common
Share and one Warrant to purchase one Common Share, in lieu of
Units that would otherwise result in the purchaser’s
beneficial ownership exceeding 4.99% of our outstanding Common
Shares (or at the election of the purchaser, 9.99%). Each
Pre-Funded Warrant contained in a Pre-Funded Unit will be
exercisable for one Common Share. The purchase price of each
Pre-Funded Unit will equal the price per Unit being sold to the
public in this offering minus $0.01, and the exercise price of each
Pre-Funded Warrant included in the Pre-Funded Unit will be $0.01
per Common Share. The Pre-Funded Warrants will be exercisable
immediately and expire when exercised in full. This offering also
relates to the Common Shares issuable upon exercise of any
Pre-Funded Warrants contained in the Pre-Funded Units sold in this
offering. Each Warrant contained in a Pre-Funded Unit has an
exercise price of $ per Common Share. The
Warrants contained in the Pre-Funded Units will be exercisable
immediately and will expire . We are also offering
the Common Shares that are issuable from time to time upon exercise
of the Warrants contained in the Pre-Funded Units.
For
each Pre-Funded Unit we sell, the number of Units we are offering
will be decreased on a one-for-one basis. Units and the Pre-Funded
Units will not be issued or certificated. The Common Shares or
Pre-Funded Warrants, as the case may be, and the Warrants can only
be purchased together in this offering but the securities contained
in the Units or Pre-Funded Units will be issued
separately.
Our
Common Shares are listed for trading on the Toronto Stock Exchange
(the “TSX”), and on the Nasdaq Capital Market
(“Nasdaq”), under the symbol “IPCI.” On
September 18, 2018, the closing sale price of our Common Shares as
reported by the TSX and Nasdaq was Cdn$3.30 and $2.51,
respectively. At a special meeting of shareholders held on August
15, 2018, our shareholders granted our board of directors (the
“Board of Directors” or “Board”) the
discretionary authority to implement a reverse stock split, known
as a share consolidation under Canadian law, of our Common Shares
on the basis of a ratio to be selected by the Board within a range
between five pre-consolidation Common Shares for one
post-consolidation Common Share and fifteen pre-consolidation
Common Shares for one post-consolidation Common Share. On September
10, 2018, the Board of Directors fixed a reverse stock split ratio
of ten pre-consolidation shares for one post-consolidation Common
Share (the “reverse split”) to be effective upon filing
articles of amendment with the Director under
the Canada Business Corporations Act (the “CBCA”). On
September 12, 2018, we filed the articles of
amendment
which
implemented the reverse split, and our Common Shares began trading
on each of Nasdaq and TSX on a post-reverse split basis under our
existing trade symbol “IPCI” at the open of market on
September 14, 2018. All historical references to Common Shares,
warrants and options outstanding prior to September 12, 2018 and
the related exercise prices and conversion prices in this
prospectus have been adjusted to reflect the effect of the reverse
split. We have assumed a public offering price of $ per Unit and $
per
Pre-Funded Unit. The actual offering price per Unit and Pre-Funded
Unit, and the exercise price of the Warrants, as applicable, will
be determined by negotiation between us and the underwriter based
on market conditions at the time of pricing, and may be at a
discount to the current market price of our Common Shares. We do
not intend to apply for listing of the Pre-Funded Warrants or the
Warrants on any securities exchange or other nationally recognized
trading system. There is no established public trading market for
the Pre-Funded Warrants or the Warrants, and we do not expect a
market to develop. Without an active trading market, the liquidity
of the Pre-Funded Warrants and the Warrants will be
limited.
You
should rely only on the information contained herein or
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different
information.
Investing in our securities involves risks. See “Risk
Factors” beginning on page 6 of this prospectus and in
the documents incorporated by reference into this prospectus for a
discussion of risks that should be considered in connection with an
investment in our securities.
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Per
Unit
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Per Pre-Funded Unit
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Total
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Public
offering price
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$
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$
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$
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Underwriting
discounts and commissions (8%)(1)
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$
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$
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$
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Proceeds,
before expenses, to us (2)
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$
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$
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$
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(1) We have
also agreed to pay the underwriter a management fee equal to 1% of
the gross proceeds raised in this offering, a non-accountable
expense allowance of $35,000 and reimbursement for legal fees and
expenses in the amount of up to $100,000. For a description of the
additional compensation to be received by the underwriter see
“Underwriting” on page 47 of this
prospectus.
(2) Excludes
potential proceeds from the exercise of the Warrants or the
Pre-Funded Warrants being offered pursuant to this
prospectus.
The
offering is being underwritten on a firm commitment basis. We have
granted the underwriter the option to purchase up to additional Common
Shares at a purchase price of $ per share and/or Warrants to
purchase up to an aggregate of Common Shares at a
purchase price of $0.01 per Warrant with an exercise price of $ per
Common Share, less the underwriting discounts and commissions. The
underwriter may exercise its option at any time and from time to
time within 30 days from the date of this prospectus. If the
underwriter exercises the option in full, the total underwriting
discounts and commissions payable by us will be $ , and the total
proceeds to us, before expenses, will be $ , excluding potential
proceeds from the exercise of the Warrants included in such
option.
The
Company’s registered office and head office is located at 30
Worcester Road, Toronto, Ontario, Canada, M9W 5X2.
We
are a foreign private issuer under United States
(“U.S.”) securities laws. The financial statements
incorporated herein by reference have been prepared in accordance
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
The
enforcement by investors of civil liabilities under U.S. federal
securities laws may be affected adversely by the fact that the
Company is incorporated under the laws of Canada, that all of its
officers and directors are residents of Canada, that some or all of
the experts named in the registration statement are residents of a
foreign country, and that a substantial portion of the assets of
the Company and said persons are located outside the United
States.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE
“SEC”) NOR ANY STATE SECURITIES COMMISSION OR CANADIAN
SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_________________________
Delivery
of the securities offered hereby is expected to be made on or about
, 2018.
_________________________
Sole Book-Running Manager
H.C. Wainwright & Co.
The
date of this prospectus is , 2018
TABLE OF CONTENTS
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Page
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ABOUT THIS PROSPECTUS
The
registration statement we filed with the SEC includes exhibits that
provide more detail of the matters discussed in this prospectus.
You should read this prospectus, the related exhibits filed with
the SEC, and the documents incorporated by reference herein before
making your investment decision. You should rely only on the
information provided in this prospectus and the documents
incorporated by reference herein or any amendment thereto. In
addition, this prospectus contains summaries of certain provisions
contained in some of the documents described herein, but reference
is made to the actual documents for complete information. All of
the summaries are qualified in their entirety by the actual
documents. Copies of some of the documents referred to herein have
been filed, will be filed or will be incorporated by reference as
exhibits to the registration statement of which this prospectus is
a part, and you may obtain copies of those documents as described
below under the heading “Where You Can Find More Information:
Incorporation by Reference.” Information contained in
later-dated documents incorporated by reference will automatically
supplement, modify or supersede, as applicable, the information
contained in this prospectus or in earlier-dated documents
incorporated by reference.
We have
not, and the underwriter has not, authorized anyone to provide any
information or to make any representations other than those
contained in this prospectus, the documents incorporated by
reference herein or in any free writing prospectuses prepared by or
on behalf of us or to which we have referred you. We take no
responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you.
This prospectus is an offer to sell only the securities offered
hereby, and only under circumstances and in jurisdictions where it
is lawful to do so. This prospectus does not constitute, and may
not be used in connection with, an offer to sell, or a solicitation
of an offer to buy, any securities offered by this prospectus by
any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation. The information
contained in this prospectus, the documents incorporated by
reference herein or in any applicable free writing prospectus is
current only as of its date, regardless of its time of delivery or
any sale of our securities. Our business, financial condition,
results of operations and prospects may have changed since that
date.
For
investors outside the United States: We have not, and the
underwriter has not, done anything that would permit this offering
or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than
in the United States. Persons outside the United States who come
into possession of this prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the
securities and the distribution of this prospectus outside the
United States.
We
further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference into this prospectus
were made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among
the parties to such agreement, and should not be deemed to be a
representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
References to
“$,” “U.S. $” or “dollars” are
to U.S. dollars, and all references to “Cdn$” or
“C$” are to the lawful currency of Canada. In this
prospectus, where applicable, and unless otherwise indicated,
amounts are converted from U.S. dollars to Canadian dollars and
vice versa by applying the closing spot rate of exchange of the
Bank of Canada on September 18, 2018. See “Exchange
Rate Information.” The financial statements of the Company
incorporated herein by reference are reported in U.S. dollars and
have been prepared in accordance with U.S. GAAP, and except as
otherwise indicated, all other information is also presented in
U.S. dollars.
Any
reference in this prospectus to our “products” includes
a reference to our product candidates and future products we may
develop.
Whenever we refer
to any of our current product candidates (including additional
product strengths of products we are currently marketing) and
future products we may develop, no assurances can be given that we,
or any of our strategic partners, will successfully commercialize
or complete the development of any of such product candidates or
future products under development or proposed for development, that
regulatory approvals will be granted for any such product candidate
or future product, or that any approved product will be produced in
commercial quantities or sold profitably.
In this
prospectus, any prospectus supplement, and/or the documents
incorporated by reference herein or therein, 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.
1
Unless
the context otherwise requires, references in this prospectus to
(i) share amounts, per share data, share prices, exercise prices
and conversion rates have been adjusted to reflect the effect of
the 1-for-10 reverse split which became effective on each of Nasdaq
and TSX at the open of market on September 14, 2018, (ii)
“consolidation” or “share consolidation”
are intended to refer to such reverse split, and (iii)
“pre-consolidation” and
“post-consolidation” are intended to refer to
“pre-reverse split” and “post-reverse
split”, respectively.
TRADEMARKS
Intellipharmaceutics™,
Hypermatrix™,
Drug Delivery Engine™,
IntelliFoam™,
IntelliGITransporter™,
IntelliMatrix™,
IntelliOsmotics™,
IntelliPaste™,
IntelliPellets™,
IntelliShuttle™,
Rexista™,
nPODDDS™
, PODRAS™
and 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 prospectus or in any prospectus supplement, all
rights to such trademarks are nevertheless reserved. Unless
otherwise noted, other trademarks used in this prospectus are the
property of their respective holders.
This summary highlights information contained elsewhere in this
prospectus or incorporated by reference herein. This summary is not
complete and may not contain all of the information that you should
consider before deciding whether or not you should purchase the
securities offered hereunder. You should read this entire
prospectus carefully, including the section entitled “Risk
Factors” beginning on page 6 of this prospectus and the
section entitled “Risks Factors” in our annual report
on Form 20-F for the fiscal year ended November 30, 2017, and all
other information included or incorporated herein by reference in
this prospectus before you decide whether to purchase our
securities.
Our Company
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 patented
Hypermatrix™
technology 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, we have developed several drug delivery systems and a
pipeline of products (some of which have received U.S. Food and
Drug Administration, or FDA, approval) and product candidates in
various stages of development, including abbreviated new drug
applications, or ANDAs, filed with the FDA (and one Abbreviated New
Drug Submission, or ANDS, filed with Health Canada) in therapeutic
areas that include neurology, cardiovascular, gastrointestinal
tract, or GIT, diabetes and pain.
We also
have new drug application, or NDA, 505(b)(2) specialty drug product
candidates in our development pipeline. These include our oxycodone
hydrochloride extended-release tablets (previously referred to as
Rexista™),
or Oxycodone ER, an abuse deterrent oxycodone based on our
proprietary nPODDDS™
novel Point Of Divergence Drug Delivery System (for which an NDA
has been filed with the FDA), and Regabatin™
XR (pregabalin extended-release capsules). The NDA 505(b)(2)
pathway (which relies in part upon the approving agency’s findings for a previously approved
drug) both accelerates development timelines and reduces costs in
comparison to NDAs for new chemical entities. An advantage of our
strategy for development of NDA 505(b)(2) drugs is that our product
candidates can, if approved for sale by the FDA, potentially enjoy
an exclusivity period which may provide for greater commercial
opportunity relative to the generic ANDA route.
Recent Developments
Reverse Stock Split
As more
fully described below (under “Nasdaq Notices and Nasdaq Hearings Panel Grant
of Request for Continued Listing”), in order to
qualify for continued listing on Nasdaq, we have to meet certain
continued listing criteria, including a closing bid price of at
least $1.00 for a minimum of 10 consecutive business days. In
connection with the minimum bid price requirement, at a special
meeting of shareholders held on August 15, 2018, our shareholders
granted our Board of Directors discretionary authority to implement
a reverse split of our outstanding Common Shares, on the basis of a
ratio to be selected by the Board within a range between five
pre-consolidation Common Shares for one post-consolidation Common
Share and fifteen pre-consolidation Common Shares for one
post-consolidation Common Share.
On
September 10, 2018, the Board of Directors fixed a reverse split
ratio of ten pre-consolidation shares for one post-consolidation
Common Share. On September 12, 2018, we filed articles of amendment
with the Director under the CBCA to effectuate the reverse split,
and our Common Shares began trading on each of Nasdaq and TSX on a
post-reverse split basis under our existing trade symbol
“IPCI” at the open of market on September 14,
2018.
2
Nasdaq Notices and Nasdaq Hearings Panel Grant of Request for
Continued Listing
While
we are currently not in compliance with the requirements for the
continued listing of our Common Shares on Nasdaq, as described
below, we have until September 28, 2018 to satisfy those
requirements. This offering and the reverse split are important
parts of our plan to regain compliance with Nasdaq’s
requirements for the continued listing of our Common
Shares.
In
September 2017, we were notified by Nasdaq that we were not in
compliance with the minimum market value of listed securities
required for continued listing on Nasdaq. Nasdaq Listing Rule
5550(b) requires listed securities to maintain a minimum market
value of $35.0 million, among other alternatives, including minimum
shareholders’ equity of $2.5 million. A failure to meet the
minimum market value requirement exists if the deficiency continues
for a period of 30 consecutive business days. Based on the market
value of our Common Shares for the 30 consecutive business days
from August 8, 2017, we did not satisfy the minimum market value of
listed securities requirement. By rule, we were provided 180
calendar days, or until March 19, 2018, to regain compliance
with that requirement. To regain compliance, our Common Shares were
required to have a market value of at least $35.0 million for a
minimum of 10 consecutive business days prior to March 19, 2018,
which we were unable to satisfy. In the alternative, if the minimum
market value requirement for continued listing is not met, an
issuer may maintain continued listing under Nasdaq Listing
Rule 5550(b) if it has shareholders’ equity of at least
$2.5 million.
On
April 20, 2018, we received notice that the Nasdaq Listings
Qualification staff (the “Nasdaq Staff”) had determined
to delist our Common Shares as a result of our failure to meet
either the minimum market value of listed securities requirement or
the minimum shareholders’ equity requirement for continued
listing. However, any delisting action by the Nasdaq Staff was
stayed pending the ultimate conclusion of the Company’s
hearing before a Nasdaq Hearings Panel (the
“Panel”).
In
addition to not meeting the minimum market value of listed
securities or minimum shareholders’ equity requirements, we
were separately notified in December 2017 that our Common Shares no
longer satisfied the minimum $1.00 per share bid requirement under
Nasdaq Listing Rule 5550(a)(2).
We
attended a hearing before the Panel on May 17, 2018, and
subsequently received formal notice that the Panel had granted our
request for continued listing until September 28, 2018, by
which date we are required to evidence compliance with the
requirements for continued listing on Nasdaq. Specifically, on or
before September 28, 2018, the Panel has required that:
(i) our Common Shares evidence a closing bid price of at least
$1.00 per share for a minimum of ten consecutive business days,
(ii) we evidence shareholders’ equity of at least $2.5
million, and (iii) we provide the Panel with updated financial
projections demonstrating our ability to maintain compliance with
the minimum shareholders’ equity requirement over the
following 12 months.
There
is no assurance that we will be able to regain or maintain
compliance with the Nasdaq listing requirements or, if we do regain
compliance, that we will be able to maintain such compliance over
the long term. If we are unable to do so, our Common Shares may be
delisted from Nasdaq and the liquidity and market price of our
Common Shares may be adversely impacted as a result. If our Common
Shares are delisted from Nasdaq, they may trade in the
over-the-counter system, which may be a less liquid market. In such
case, our shareholders’
ability to trade, or obtain quotations of the market value of, our
Common Shares could be severely limited because of lower trading
volumes and transaction delays. See “—Risk Factors--Our Common
Shares will be delisted from the Nasdaq Capital Market if we do not
satisfy certain requirements of the Nasdaq Hearing Panel by
September 28, 2018.”
FDA Meeting
In
February 2018, we and the FDA discussed a previously-announced
Complete Response Letter for Oxycodone ER, including issues related
to the blue dye in the product candidate. Based on the meeting, the
product candidate will no longer include the blue dye. The blue dye
was intended to act as an additional deterrent if Oxycodone ER is
abused and serve as an early warning mechanism to flag potential
misuse or abuse. The FDA confirmed that the removal of the blue dye
is unlikely to have any impact on formulation quality and
performance. As a result, we will not be required to repeat in vivo
bioequivalence studies and pharmacokinetic studies submitted in the
Oxycodone ER NDA. The FDA also indicated that, from an abuse
liability perspective, Category 1 studies will not have to be
repeated on Oxycodone ER with the blue dye removed.
In May
2018, we announced that we had commenced our Category 2 and 3 human
abuse liability studies for our Oxycodone ER product candidate to support its
abuse-deterrent label claims for the intranasal route of
administration. We also announced that
planned studies to support abuse-deterrent label claims for the
oral route of abuse were scheduled to commence. Both studies are
now underway.
3
There
can be no assurance that our products will be successfully
commercialized or produce significant revenues for us. Also, there
can be no assurance that we will not be required to conduct further
studies for our Oxycodone ER product candidate, that the FDA will
approve any of our requested abuse-deterrence label claims or that
the FDA will ultimately approve the NDA for the sale of our
Oxycodone ER product in the U.S. market, or that it will ever be
successfully commercialized, that we will be successful in
submitting any additional ANDAs or NDAs with the FDA or ANDSs with
Health Canada, that the FDA or Health Canada will approve any of
our current or future product candidates for sale in the U.S.
market and Canadian market, or that they will ever be successfully
commercialized and produce significant revenue for us.
Our Corporate Information
We were
formed under the CBCA 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. Our website address is
http://www.intellipharmaceutics.com. Information on or accessed
through our website is not incorporated into this prospectus and is
not a part of this prospectus. Our Common Shares are listed for
trading on the TSX and on Nasdaq under the symbol
“IPCI.”
|
Units offered by us in this offering:
|
Up to
Units, each consisting of one Common Share and one Warrant to
purchase one Common Share
|
|
Pre-Funded Units offered by us in this offering:
|
We are
also offering to each purchaser whose purchase of Units in this
offering would otherwise result in the purchaser, together with its
affiliates and certain related parties, beneficially owning more
than 4.99% of our outstanding Common Shares immediately following
the consummation of this offering, the opportunity to purchase, if
the purchaser so chooses, Pre-Funded Units (each Pre-Funded Unit
consisting of one Pre-Funded Warrant to purchase one Common Share
and one Warrant to purchase one Common Share) in lieu of Units that
would otherwise result in the purchaser’s beneficial
ownership exceeding 4.99% of our outstanding Common Shares (or at
the election of the purchaser, 9.99%). Each Pre-Funded Warrant
contained in a Pre-Funded Unit will be exercisable for one Common
Share. The purchase price of each Pre-Funded Unit will equal the
price per Unit being sold to the public in this offering minus
$0.01, and the exercise price of each Pre-Funded Warrant included
in the Pre-Funded Unit will be $0.01 per Common Share. The
Pre-Funded Warrants will be exercisable immediately and expire when
exercised in full. This offering also relates to the Common Shares
issuable upon exercise of any Pre-Funded Warrants contained in the
Pre-Funded Units sold in this offering. For each Pre-Funded Unit we
sell, the number of Units we are offering will be decreased on a
one-for-one basis. Because we will issue a Warrant as part of each
Unit or Pre-Funded Unit, the number of Warrants sold in this
offering will not change as a result of a change in the mix of the
Units and Pre-Funded Units sold.
|
|
Warrants offered by us in this offering:
Offering price:
Option to purchase additional securities:
|
Warrants
to purchase an aggregate of up to Common Shares. Each Unit and each
Pre-Funded Unit includes a Warrant to purchase one Common Share.
Each Warrant contained in a Unit or Pre-Funded Unit has an exercise
price of $ per Common Share, will be immediately separable from the
Common Shares or Pre-Funded Warrant, as the case may be, will be
exercisable immediately and will expire.
$
per Unit
$
per Pre-Funded Unit
The
underwriter has the option to purchase up to additional
Common Shares at a purchase price of $ per share and/or Warrants to
purchase up to an aggregate of Common Shares at a purchase price of
$0.01 per Warrant with an exercise price of $ per Common Share,
less the underwriting discounts and commissions. The underwriter
may exercise its option at any time and from time to time within 30
days from the date of this prospectus.
|
|
Common Shares outstanding before this offering:
|
4,353,678
Common Shares
|
|
Common Shares to be outstanding after this offering:
|
Common
Shares (assuming no sale of any Pre-Funded Units), or Common Shares
if the underwriter exercises its option to purchase additional
Units in full (assuming no sale of any Pre-Funded
Units).
|
4
|
|
|
|
Use of proceeds:
|
We
estimate that the net proceeds to us from this offering will be
approximately $ million ($ million if the underwriter’s
option to purchase additional Units is exercised in full), based on
an assumed public offering price per Unit of $ , the last
reported sale price of our Common Shares on Nasdaq on
September , 2018, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable
by us. We currently intend to use the net proceeds from this
offering for general corporate purposes, which may include working
capital, capital expenditures, research and development, accounts
payable, and other commercial expenditures. We expect from time to
time to evaluate the acquisition of products and technologies for
which a portion of the net proceeds may be used, although we
currently are not planning or negotiating any such transactions.
See “Use of Proceeds” beginning on page 46.
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|
Nasdaq and TSX symbol/listing:
|
Our
Common Shares are listed under the symbol “IPCI.” We do
not intend to apply for listing of the Pre-Funded Warrants or the
Warrants on any securities exchange or other nationally recognized
trading system. There is no established public trading market for
the Pre-Funded Warrants or the Warrants, and we do not expect a
market to develop. See “Recent Developments” above for
important information about the listing of our Common Shares on
Nasdaq.
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|
Risk Factors:
|
Investing
in our securities involves substantial risks. You should carefully
review and consider the “Risk Factors” section of this
prospectus for a discussion of factors to consider before deciding
to invest in our securities.
|
The
number of Common Shares shown above to be outstanding after this
offering is based on 4,353,678 shares outstanding as
of September 18, 2018 and excludes, as of that date:
●
an aggregate of
561,316 Common Shares issuable upon the exercise of outstanding
options, with a weighted average exercise price of U.S. $31.50 per
Common Share;
●
up to 150,455
additional Common Shares that have been reserved for issuance in
connection with future grants under our stock option
plan;
5
●
an aggregate of
824,570 Common Shares issuable upon the exercise of outstanding
Common Share purchase warrants, with a weighted average exercise
price of U.S. $9.92 per Common Share;
●
an aggregate of
10,279 deferred share units granted to non-management directors (to
defer receipt of all or a portion of their Board fees until
termination of the Board service and to receive such fees in the
form of Common Shares at that time);
●
an aggregate of
45,000 Common Shares issuable upon the conversion of an unsecured
convertible debenture in the principal amount of U.S. $1.5 million
(the “2013 Debenture”), of which U.S. $1.35 million
remains outstanding, held by Drs. Isa and Amina Odidi, who are
directors, executive officers and principal shareholders of our
Company;
●
an aggregate of
166,666 Common Shares issuable upon the conversion of an unsecured
convertible debenture in the principal amount of $500,000 (the
“2018 Debenture”), all of which remains outstanding,
held by Drs. Isa and Amina Odidi, who are directors, executive
officers and principal shareholders of our Company;
●
Common
Shares issuable upon exercise of the Pre-Funded Warrants offered
hereby at an exercise price of $0.01 per share;
●
Common
Shares issuable upon exercise of the Warrants offered hereby at an
exercise price of $ per share; and
●
Common
Shares issuable upon exercise of the Underwriter’s Warrants
offered hereby at an exercise price of $ per share.
Unless
otherwise indicated, all information contained in this prospectus
(i) assumes no exercises by the underwriter of its option to
purchase additional securities, and no sale of any Pre-Funded
Warrants; and (ii) reflects a 1-for-10 reverse split of our issued
and outstanding Common Shares effected on September 12, 2018, and
the corresponding adjustment of Common Share prices and related
exercise prices and conversion prices.
Our past experience may not be indicative of future performance,
and as noted elsewhere in this prospectus and documents
incorporated by reference into this prospectus, we have included
forward-looking statements about our business, plans and prospects
that are subject to change. In addition to the other risks or
uncertainties contained in this prospectus and documents
incorporated by reference into this prospectus, the following risks
may affect our operating results, financial condition and cash
flows. If any of these risks occurs, either alone or in combination
with other factors, our business, financial condition or operating
results could be adversely affected. Moreover, readers should note
this is not an exhaustive list of the risks we face. Some risks are
unknown or not quantifiable, and other risks that we currently
perceive as immaterial may ultimately prove more significant than
expected. Statements about plans, predictions or expectations
should not be construed to be assurances of performance or promises
to take a given course of action. Before making an investment
decision, you should carefully consider these risks, including
those set forth below and those described in the “Risk
Factors” section of our Annual Report on Form 20-F, as filed
with the SEC on March 1, 2018, which is incorporated by reference
into this prospectus, as well as any amendment or update to our
risk factors reflected in subsequent filings with the SEC, and you
should also carefully consider any other information we include or
incorporate by reference in this prospectus.
Any of the risks we describe below or in the information
incorporated herein by reference in this prospectus could cause our
business, financial condition or operating results to suffer. The
market price of our Common Shares could decline if one or more of
these risks and uncertainties develop into actual events. You could
lose all or part of your investment.
Risks Relating 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 (“R&D”),
clinical and regulatory activities necessary and to defend against
patent litigation claims in order to bring our products to market
and to establish commercial manufacturing, marketing and sales
capabilities. As of November 30, 2017, we had a cash balance of
$1.9 million. As of May 31, 2018, our cash balance was $1.4
million. While we expect to satisfy certain short term capital
needs from cash on hand and profit transfer payments from our
commercial partners, we need to obtain additional funding as we
further the development of our product candidates. Potential
sources of capital may include payments from licensing agreements,
cost savings associated with managing operating expense levels,
other equity and/or debt financings, and/or new strategic
partnership agreements which fund some or all costs of product
development. We intend to utilize the equity markets to bridge any
funding shortfall and to provide capital to continue to advance our
most promising product candidates. Our future operations are highly
dependent upon our ability to source additional capital to support
advancing our product pipeline through continued R&D activities
and to fund any significant expansion of our operations. Our
ultimate success will depend on whether our product candidates
receive approval by the FDA or Health Canada and whether we are
able to successfully market our approved products. We cannot be
certain that we will receive FDA or Health Canada approval for any
of our current or future product candidates, that we will reach the
level of sales and revenues necessary to achieve and sustain
profitability or that we can secure other capital sources on terms
or in amounts sufficient to meet our needs, or at all. Our cash
requirements for R&D during any period depend on the number and
extent of the R&D activities we focus on. At present, we are
working principally on our Oxycodone ER 505(b)(2),
PODRAS™ technology,
additional 505(b)(2) product candidates for development in various
areas, and selected generic product candidate development projects.
Our development of Oxycodone ER will require significant
expenditures, including costs to defend against the Purdue
litigation (as described in the “Legal Proceedings”
section). For our Regabatin™ XR 505(b)(2)
product candidate, Phase III clinical trials can be capital
intensive, and will only be undertaken consistent with the
availability of funds and a prudent cash management strategy. We
anticipate some investment in fixed assets and equipment over the
next several months, the extent of which will depend on cash
availability.
6
Effective September
28, 2017, the maturity date for the 2013 Debenture was extended to
October 1, 2018. The Company currently expects to repay the current
outstanding principal amount of $1,350,000 on or about October 1,
2018, if the Company then has cash available.
The
availability of equity or debt financing will be affected by, among
other things, the results of our R&D, our ability to obtain
regulatory approvals, our success in commercializing approved
products with our commercial partners and the market acceptance of
our products, the state of the capital markets generally, strategic
alliance agreements and other relevant commercial considerations.
In addition, if we raise additional funds by issuing equity
securities, our then-existing security holders will likely
experience dilution, and the incurring of indebtedness would result
in increased debt service obligations and could require us to agree
to operating and financial covenants that would restrict our
operations. In the event that we do not obtain sufficient
additional capital, it will raise substantial doubt about our
ability to continue as a going concern, realize our assets, and pay
our liabilities as they become due. Our cash outflows are expected
to consist primarily of internal and external R&D, legal and
consulting expenditures to advance our product pipeline and
selling, general and administrative expenses to support our
commercialization efforts. Depending upon the results of our
R&D programs, the impact of the Purdue litigation and the
availability of financial resources, we could decide to accelerate,
terminate, or reduce certain projects, or commence new ones. Any
failure on our part to successfully commercialize approved products
or raise additional 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 us not taking advantage of business opportunities,
in the termination or delay of clinical trials or us not taking any
necessary actions required by the FDA or Health Canada 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, ANDSs or
NDAs, at all or in time to competitively market our products or
product candidates.
We have a history of operating losses, which may continue in the
foreseeable future.
We have
incurred net losses from inception through May 31, 2018 and
had an accumulated deficit of $77,882,323 as of such date and have
incurred additional losses since such date. As we engage in the
development of products in our pipeline, we may 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. In
addition to the other factors described in this prospectus, our
ultimate success will depend on how many of our product candidates
receive approval by the FDA or Health Canada and whether we are
able to successfully market approved products. We cannot be certain
that we will be able to receive FDA or Health Canada 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. If we are
unsuccessful in commercializing our products and/or securing
sufficient financing, we may need to cease or curtail our
operations.
Approvals for our product candidates may be delayed or become more
difficult to obtain if the FDA changes 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 User Fee Amendments of 2012, or GDUFA, were enacted into law.
The GDUFA legislation implemented substantial fees for new ANDAs,
Drug Master Files, product and establishment fees. In return, the
program is intended to provide faster and more predictable ANDA
reviews by the FDA and more timely inspections of drug facilities.
For the FDA’s fiscal year 2018, the user fee rate is
$171,823 for
new ANDAs. For the FDA’s fiscal year 2018, the FDA will also
charge an annual facility user fee of $226,087 plus a new general
program fee of $159,079. 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 and generate revenues and thus may have a material adverse
effect on our business, results of operations and financial
condition.
7
We operate in a highly litigious environment.
From
time to time, we may be exposed to claims and legal actions in the
normal course of business. 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 or 505(b)(2) NDA 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.
As of
the date of this prospectus, we are not aware of any pending or
threatened material litigation claims against us, other than as
described in this prospectus under the caption “Legal
Proceedings”. 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.
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 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;
provided, however, we may not be able to obtain the necessary
licenses on acceptable terms, or at all. 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. Any of the foregoing
may have a material adverse effect upon our business and financial
condition.
We are a defendant in litigation and are at risk of additional
similar litigation in the future that could divert
management’s attention and adversely affect our business and
could subject us to significant liabilities.
We are
a defendant in the litigation matters described under the heading
“Legal Proceedings.” The defense of such litigation may
increase our expenses and divert our management’s attention
and resources, and any unfavorable outcome could have a material
adverse effect on our business and results of operations. Any
adverse determination in such litigation, or any settlement of such
litigation matters could require that we make significant payments.
In addition, we may be the target of other litigation in the
future. Any negative outcome in any ongoing or future litigation
may have a material adverse effect on our business and financial
condition.
Our significant shareholders have the ability to exercise
significant influence over certain corporate actions.
Drs.
Amina and Isa Odidi, our President, Chief Operating Officer and
Co-Chief Scientific Officer and our Chairman, Chief Executive
Officer and Co-Chief Scientific
Officer, respectively, and principal shareholders of our
Company, and Odidi Holdings Inc., a privately-held company
controlled by Drs. Amina and Isa Odidi, owned in the aggregate
approximately 13.28% of our issued and outstanding Common Shares as
of September 18, 2018 (and collectively beneficially owned in the
aggregate approximately 23.5% of our Common Shares, including
Common Shares issuable upon the exercise of outstanding options and
the conversion of the 2013 Debenture and 2018 Debenture that are
exercisable or convertible within 60 days of the date hereof). As a
result, these principal shareholders have the ability to exercise
significant influence over all matters submitted to our
shareholders for approval.
8
We may be classified as a “passive foreign investment
company” 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, or PFIC, for U.S. federal income tax purposes
could have significant and adverse tax consequences for U.S.
Holders (as defined below) of our Common Shares and Warrants. It
may be possible for U.S. Holders of Common Shares, but not holders
of Warrants with respect to periods prior to exercise, 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 Internal Revenue Code (the “Code”)
(a “QEF Election”) or a mark-to-market election under
Section 1296 of the Code. 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.
Although the matter is not free from doubt, we believe that we were
not a PFIC during our 2017 taxable year and will not likely be a
PFIC during our 2018 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 2018 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 it 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
(including our 2018 taxable 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 Common Shares, we generally will continue
to be treated as a PFIC with respect to those holders 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 Common Shares will
depend on whether such U.S. Holder makes a QEF or mark-to-market
election. A U.S. Holder may only make a QEF election if we
agree to provide certain tax information to such holder annually.
At this time, we do not intend to provide U.S. Holders with such
information as may be required to make a QEF election
effective.
Unless
otherwise provided by the IRS, a U.S. holder of our Common Shares
is generally required to file an informational return annually to
report its ownership interest in the Company during any year in
which we are a PFIC. If we are a PFIC for one or more years in
which a U.S. Holder holds a Warrant prior to exercise, it is
possible that such holder could recognize gain on the sale,
exchange or disposition of that Warrant that it would not otherwise
recognize if we were not a PFIC and any U.S. income tax imposed on
the holder with respect to the inclusion of such gain or the
inclusion of a pro rata share of our income in his, her or its
income following exercise of such Warrant could result in an
interest charge payable on such holder’s tax liability that
is calculated back to the first year in which such holder held that
Warrant in which we were considered to be a PFIC.
The
foregoing only speaks to the United States federal income tax
considerations as to the Code in effect on the date of this
prospectus.
Loss of key scientists and/or 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 Chief Executive Officer and Co-Chief Scientific
Officer , and Dr. Amina Odidi, our President, Chief
Operating Officer and Co-Chief Scientific
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 the 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 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.
9
We may be subject to product liability claims 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. Any of the foregoing may have a
material adverse effect on our business and financial
condition.
We are subject to currency rate fluctuations that may impact our
financial results.
Although our
financial results are reported in U.S. dollars and our revenues are
payable in U.S. dollars, a majority of our expenses are payable in
Canadian dollars. Our financial condition may be affected by
movements of the U.S. dollar against the Canadian dollar. There may
be instances where we have net foreign currency exposure. Any
fluctuations in exchange rates may have an adverse effect on our
financial results.
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;
●
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.
10
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 through contractual
provisions in supply contracts, by management of inventory and by
continuing to search for alternative authorized suppliers of such
materials or their equivalents, 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 our
customers, could have a material adverse effect on our business,
results of operations, financial condition and cash
flows.
There has been an increased public awareness of the problems
associated with the potential for abuse of opioid-based
medications.
There
has been increasing legislative attention to opioid abuse in the
U.S., including passage of the 2016 Comprehensive Addiction and
Recovery Act and the 21st Century Cures Act, which, among other
things, strengthens state prescription drug monitoring programs and
expands educational efforts for certain populations. These laws
could result in fewer prescriptions being written for opioid drugs,
which could impact future sales of our Oxycodone ER and related
opioid product candidates.
Federal, state and
local governmental agencies have increased their level of scrutiny
of commercial practices of companies marketing and distributing
opioid products, resulting in investigations, litigation and
regulatory intervention affecting other companies. A number of
counties and municipalities have filed lawsuits against
pharmaceutical wholesale distributors, pharmaceutical manufacturers
and retail chains related to the distribution of prescription
opioid pain medications. Policy makers and regulators are seeking
to reduce the impact of opioid abuse on families and communities
and are focusing on policies aimed at reversing the potential for
abuse. In furtherance of those efforts, the FDA has developed an
Action Plan and has committed to enhance safety labeling, require
new data, strengthen post-market requirements, update the Risk
Evaluation and Mitigation Strategy program, expand access to and
encourage the development of abuse-deterrent formulations and
alternative treatments, and re-examine the risk-benefit profile of
opioids to consider the wider public health effects of opioids,
including the risk of misuse. Several states also have passed laws
and have employed other clinical and public health strategies to
curb prescription drug abuse, including prescription limitations,
increased physician education requirements, enhanced monitoring
programs, tighter restrictions on access, and greater oversight of
pain clinics. This increasing scrutiny and related governmental and
private actions, even if not related to a product that we intend to
manufacture and commercialize, could have an unfavorable impact on
the overall market for opioid-based products such as our Oxycodone
ER product candidate, or otherwise negatively affect our
business.
We have limited manufacturing, sales, marketing or distribution
capability and rely upon third parties.
While
we have our own manufacturing facility in Toronto, we rely on
third-party manufacturers to supply pharmaceutical ingredients, and
we will be reliant upon a third-party manufacturer to produce
certain of our products and product candidates. Third-party
manufacturers may not be able to meet our deadlines or adhere to
quality standards and specifications. Our reliance on third parties
for the manufacture of pharmaceutical ingredients and finished
products creates a dependency that could severely disrupt our
research and development, our clinical testing, and ultimately our
sales and marketing efforts if such third party manufacturers
fail to
perform satisfactorily, or do not adequately fulfill their
obligations. If our manufacturing operation or any
contracted manufacturing operation is unreliable or unavailable, we
may not be able to move forward with our intended business
operations and our entire business plan could fail. There is no
assurance that our manufacturing operation or any third-party
manufacturers will be able to meet commercialized scale production
requirements in a timely manner or in accordance with applicable
standards or current Good Manufacturing Process.
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
11
have
developed or we are developing or that will cause our technologies
or products to become obsolete or non-competitive. In addition,
such competitors may obtain FDA approval for products faster than
us. Any of the foregoing 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
favorable 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.
Although we believe
that our ownership of patents for some of our drug delivery
products will limit direct competition for such products, we must
also compete with established existing products and other
technologies, 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 rely on commercial partners, and may rely on future commercial
partners, to market and commercialize our products and, if
approved, our product candidates, and one or more of those
commercial partners may fail to develop and effectively
commercialize our current, and any future, products.
Our
core competency and strategic focus is on drug development and we
now, and may in the future, utilize strategic commercial partners
to assist in the commercialization of our products and our product
candidates, if approved by the FDA. If we enter into strategic
partnerships or similar arrangements, we will rely on third parties
for financial resources and for commercialization, sales and
marketing. Our commercial partners may fail to develop or
effectively commercialize our current, and any future products, for
a variety of reasons, including, among others, intense competition,
lack of adequate financial or other resources or focus on other
initiatives or priorities. Any failure of our third-party
commercial partners to successfully market and commercialize our
products and product candidates would diminish our
revenues.
Our business can be impacted by wholesaler buying patterns,
increased generic competition and, to a lesser extent, seasonal
fluctuations, which may cause our operating results to
fluctuate.
We
believe that the revenues derived from our generic Focalin
XR® capsules
and generic Seroquel XR®
tablets are subject to wholesaler buying patterns, increased
generic competition negatively impacting price, margins and market
share consistent with industry post-exclusivity experience and, to
a lesser extent, seasonal fluctuations in relation to generic
Focalin XR®
capsules (as these products are indicated for conditions including
attention deficit hyperactivity disorder which we expect may see
increases in prescription rates during the school term and declines
in prescription rates during the summer months). Accordingly, these
factors may cause our operating results to fluctuate.
Our business and operations are increasingly dependent on
information technology and accordingly we would suffer in the event
of computer system failures, cyber-attacks or a deficiency in
cyber-security.
Our
internal computer systems, and those of a current and/or future
drug development or commercialization partner of ours, may be
vulnerable to damage from cyber-attacks, computer viruses, malware,
natural disasters, terrorism, war, telecommunication and electrical
failures. The risk of a security breach or disruption, particularly
through cyber-attacks, including by computer hackers, foreign
governments, and cyber terrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and
intrusions have increased. If such an event were to occur and cause
interruptions in our operations or those of a drug development or
commercialization partner, it could result in a material disruption
of our product development programs. For example, the loss of
clinical trial data from completed or ongoing or planned clinical
trials could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach results
in a loss of or damage to our data or applications, or
inappropriate disclosure of confidential or proprietary
information, we could incur significant liability and damage to our
reputation. In addition, further development of our drug candidates
could be adversely affected.
12
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 the
use of such products.
Significant
uncertainty exists as to the reimbursement status of newly approved
health care products. Some of our product candidates, such as our
once-daily Oxycodone ER, 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.
Our products and product candidates,
if approved for sale, may not gain acceptance
among physicians, patients and the medical community, thereby
limiting our potential to
generate revenue.
Even if
we are able to obtain regulatory approvals for our product
candidates, the success of any of our products will be dependent
upon market acceptance by physicians,
healthcare professionals and third-party payers and our
profitability and growth will depend on a number of factors,
including:
●
demonstration of
safety and efficacy;
●
changes in the
practice guidelines and the standard of care for the targeted
indication;
●
relative
convenience and ease of administration;
●
the prevalence and severity of any adverse side
effects;
●
the availability of
alternative products from competitors;
●
the prices of our
products relative to those of our competitors;
●
pricing, reimbursement and cost effectiveness, which may be subject
to regulatory control;
●
the number of
competitive product entries, and the nature and extent of any
aggressive pricing and rebate activities that may
follow;
●
the timing of our
market entry;
●
the ability to
market our products effectively at the retail level;
●
the acceptance of
our products by government and private formularies;
and
●
the availability of adequate third-party insurance coverage or
reimbursement.
If any product candidate that we develop does not provide a
treatment regimen that is as beneficial as, or is perceived as
being as beneficial as, the current standard of care or otherwise
does not provide patient benefit, that product candidate, if
approved for commercial sale by the FDA or other regulatory
authorities, likely will not achieve market acceptance. Our ability
to effectively promote and sell any approved products will also
depend on pricing and cost-effectiveness, including our ability to
produce a product at a competitive price and our ability to obtain
sufficient third-party coverage or reimbursement. If any product
candidate is approved but does not achieve an adequate level of
acceptance by physicians, patients and third-party payers, our
ability to generate revenues from that product would be
substantially reduced. In addition, our efforts to educate the
medical community and third-party payers on the benefits of our
product candidates may require significant resources, may be
constrained by FDA rules and policies on product promotion,
and may never be successful.
13
Risks Relating to this Offering and our Securities
Our management will have broad discretion in allocating the net
proceeds of this offering and may use the proceeds in ways with
which you disagree.
Our
management has significant flexibility in applying the net proceeds
we expect to receive in this offering. Because the net proceeds are
not required to be allocated to any specific product, investment or
transaction, and therefore you cannot determine at this time the
value or propriety of our application of those proceeds, you and
other shareholders may not agree with our decisions. In addition,
our use of the proceeds from this offering may not yield a
significant return or any return at all for our shareholders. The
failure by our management to apply these funds effectively could
have a material adverse effect on our business, results of
operations or financial condition. See “Use of
Proceeds” for a further description of how management intends
to apply the proceeds from this offering.
You will experience immediate dilution in the book value of your
investment.
Because
the effective price per Common Share included in the Units or
issuable upon exercise of the Pre-Funded Warrants included in the
Pre-Funded Units being offered may be higher than the net tangible
book value per Common Share, you will experience dilution to the
extent of the difference between the effective public offering
price per Common Share you pay in this offering and the net
tangible book value per Common Share immediately after this
offering. Our net tangible book value as of May 31, 2018, was
approximately $(1.03) million, or $(0.24) per Common Share. Net
tangible book value per share is equal to our total tangible assets
minus total liabilities, all divided by the number of Common Shares
outstanding. See “Dilution” on page 19 for a more
detailed discussion of the dilution you will incur in this
offering.
In
addition to this offering, subject to market conditions and other
factors, it is likely that we will pursue additional financings in
the future, as we continue to develop our business. In future
years, we will likely need to raise significant additional capital
to finance our operations and to fund bioequivalence studies and
clinical trials for the advancement of product development, as well
as for regulatory submissions and the development, manufacture and
marketing of other products under development and new product
opportunities. Accordingly, we may conduct substantial future
offerings of equity or debt securities. The exercise of outstanding
options and warrants and future equity issuances, including future
public offerings or future private placements of equity securities
and any additional Common Shares issued in connection with
acquisitions, will result in dilution to investors. In addition,
the market price of our Common Shares could fall as a result of
resales of any of these Common Shares due to an increased number of
Common Shares available for sale in the market.
There is no public market for the Warrants or the Pre-Funded
Warrants.
There
is no established public trading market for the Warrants or the
Pre-Funded Warrants, and we do not expect a market to develop. In
addition, we do not intend to apply to list the Warrants or the
Pre-Funded Warrants on any national securities exchange or other
nationally recognized trading system, including Nasdaq. Without an
active market, the liquidity of the Warrants or the Pre-Funded
Warrants will be limited.
The Warrants and the Pre-Funded Warrants in this offering are
speculative in nature.
Neither
the Warrants nor the Pre-Funded Warrants in this offering confer
any rights of Common Share ownership on its holders, such as voting
rights or the right to receive dividends, but rather merely
represent the right to acquire Common Shares at a fixed price
during a fixed period of time. Specifically, commencing on the date
of issuance, holders of the Warrants may exercise their right to
acquire Common Shares and pay an exercise price of $ per Common
Share, subject to certain adjustments, prior to the expiration of
the Warrants.
Moreover, following
this offering, the market value of the Warrants and the Pre-Funded
Warrants, if any, is uncertain and there can be no assurance that
the market value of the Warrants or the Pre-Funded Warrants will
equal or exceed their imputed offering price.
There is no public market for the Warrants or the Pre-Funded
Warrants to purchase shares of our Common Shares included in the
Units and the Pre-Funded Units being offered by us in this
offering.
There
is no established public trading market for the Warrants or the
Pre-Funded Warrants included in the Units and the Pre-Funded Units
being offered in this offering, and we do not expect a market to
develop. In addition, we do not intend to apply to list the
Warrants or the Pre-Funded Warrants on any national securities
exchange or other nationally recognized trading system, including
Nasdaq. Without an active market, the liquidity of the Warrants and
the Pre-Funded Warrants will be limited.
14
Sales of a significant number of our Common Shares in the public
markets, or the perception that such sales could occur, could
depress the market price of the Common Shares.
Sales
of a substantial number of our Common Shares or securities
convertible or exchangeable into Common Shares in the public
markets could depress the market price of the Common Shares and
impair our ability to raise capital through the sale of additional
equity securities. We cannot predict the effect that future sales
of Common Shares would have on the market price of our Common
Shares.
In
order to raise additional capital, we intend to offer additional
Common Shares or other securities convertible into or exchangeable
for our Common Shares. In addition, a substantial portion of our
Common Shares are currently freely trading without restriction
under the U.S. Securities Act, having been registered for resale or
held by their holders for over six months and are eligible for sale
under Rule 144. If the holders of our registered Common Shares
choose to sell such shares in the public market or if holders of
our convertible securities exercise or convert their securities and
sell the underlying Common Shares in the public market, or if
holders of currently restricted Common Shares choose to sell such
shares in the public market, the prevailing market price of our
Common Shares may decline. The sale of shares issued upon the
exercise of our securities convertible into or exchangeable for our
Common Shares could also further dilute the holdings of our
then-existing shareholders. In addition, future public sales by
holders of our Common Shares could impair our ability to raise
capital through equity offerings.
Upon
completion of this offering, based on our shares outstanding as of
May 31, 2018, we will have Common Shares
outstanding (post reverse-split) based on the issuance and sale of
Units in this offering, assuming no sale of any Pre-Funded Units.
Of these shares, shares are subject to a contractual lock-up with
the underwriter for this offering for a period of 90 days following
this offering. These shares can be sold, subject to any applicable
volume limitations under federal securities laws, after the earlier
of the expiration of, or release from, the 90-day lock-up period.
The balance of our outstanding Common Shares, including any Common
Shares included in the Units, and Common Shares issuable upon the
exercise of the Warrants or the Pre-Funded Warrants, other than
shares acquired by our current shareholders who are also subject to
the contractual lock-up, may be resold in the public market
immediately without restriction, unless owned or purchased by our
affiliates.
As of
September 18, 2018, there are currently Common Shares issuable upon
the exercise of outstanding options and warrants and deferred share
units and the conversion of the 2013 Debenture and 2018 Debenture
into an aggregate of approximately 211,666 Common Shares, excluding
the securities offered hereby. To the extent any of our options and
warrants are exercised and the 2013 Debenture or the 2018 Debenture
is converted, a shareholder’s percentage ownership will be
diluted and our stock price could be further adversely affected.
Moreover, the market price of the shares could drop significantly
if the holders of these shares sell them or if the market perceives
that the holders intend to sell these shares.
The
market price of our Common Shares could decline as a result of
sales of Common Shares or securities that are convertible into or
exchangeable for, or that represent the right to receive, our
Common Shares after this offering or the perception that such sales
could occur.
Our Common Shares will be delisted from the Nasdaq Capital Market
if we do not satisfy certain requirements of the Nasdaq Hearing
Panel by September 28, 2018.
On
April 20, 2018, we received notice of the determination of the
Nasdaq Staff to delist our Common Shares as a result of the failure
to meet either the minimum market value requirement or the minimum
shareholders’ equity requirement for continued listing. After
an appeal before the Nasdaq Hearings Panel (the
“Panel”), the Panel approved our request for continued
listing, subject to our compliance with the following by September
28, 2018:
●
Our Common Shares
having a closing bid price of over $1.00 for ten consecutive
trading days;
●
A
shareholders’ equity position of over $2.5 million;
and
●
Providing the Panel
with updated financial projections demonstrating our ability to
maintain compliance with the $2.5 million shareholders’
equity requirement for the coming year.
There
is no assurance that we will be able to satisfy these requirements
or that, if we do, we will be able to maintain such compliance with
Nasdaq’s requirements. If we are unable to do so, our Common
Shares will no longer be listed on Nasdaq or another U.S. national
securities exchange and the liquidity and market price of our
Common Shares may be adversely affected. If our Common Shares are
delisted from Nasdaq, they may trade in the U.S. on the
over-the-counter market, which is a less liquid market. In such
case, our shareholders’ ability to trade, or obtain
quotations of the market value of, our Common Shares would be
severely limited because of lower trading volumes and transaction
delays. These factors could contribute to lower prices and larger
spreads in the bid and ask prices for our securities. In addition, delisting
could harm our ability to raise capital through alternative
financing sources on terms acceptable to us, or at all, and may
result in the potential loss of confidence by investors, employees
and fewer business development opportunities.
15
If our Common Shares are not listed on a national securities
exchange, compliance with applicable state securities laws may be
required for subsequent offers, transfers and sales of the Common
Shares and warrants offered hereby.
Because
our Common Shares are currently listed on Nasdaq, we are not
required to register or qualify in any state the subsequent offer,
transfer or sale of the Common Shares. If our Common Shares are
delisted from Nasdaq and are not eligible to be listed on another
national securities exchange, subsequent transfers of our Common
Shares offered hereby by U.S. holders may not be exempt from state
securities laws. In such event, it will be the responsibility of
the holder of Common Shares to register or qualify the Common
Shares for any subsequent offer, transfer or sale in the United
States or to determine that any such offer, transfer or sale is
exempt under applicable state securities laws.
On September 12, 2018, we effectuated a reverse split of our
outstanding Common Shares in order to meet the Nasdaq minimum bid
price requirement; however, no assurance can be given that the
reverse split will increase our share price.
In
order to maintain our continued listing on Nasdaq, we have to meet
certain continued listing criteria by September 28, 2018, including
a closing bid price of at least $1.00 for a minimum of ten
consecutive trading days. In connection with the minimum bid price
requirement, on August 15, 2018, at a special meeting of
shareholders, our shareholders granted our Board of Directors
discretionary authority to implement a reverse split of our Common
Shares on the basis of a ratio to be selected by the Board within a
range between 5 pre-consolidation Common Shares for 1
post-consolidation Common Share and 15 pre-consolidation Common
Shares for 1 post-consolidation Common Share. On September 12,
2018, we filed articles of amendment with the Director under the
CBCA pursuant to which ten pre-consolidation Common Shares were
consolidated into one post-consolidation Common Share. Our common
shares began trading on each of Nasdaq and TSX on a post-reverse
split basis at the open of market on September 14,
2018.
The
reverse split could result in a significant devaluation of our
market capitalization and trading price of the Common Shares. We
expect that the reverse split of the outstanding Common Shares will
increase the market price of the Common Shares. However, no
assurance can be given that the reverse split will lead to a
sustained increase in the trading price or the trading market for
our Common Shares or that the market price per share of our Common
Shares after the reverse split will rise in proportion to the
reduction in the number of pre-split Common Shares outstanding
before the reverse split, or that the market price per share
post-reverse split will remain in excess of the $1.00 minimum
closing bid price as required by the Nasdaq Marketplace Rules or
that we will otherwise meet the requirements for continued trading
on Nasdaq.
The
market price of our Common Shares may be based on our performance
and other factors, some of which are unrelated to the number of
shares outstanding. If the trading price of our Common Shares
declines, the percentage decline as an absolute number and as a
percentage of our overall market capitalization may be greater than
would occur in the absence of the reverse split. Furthermore, the
liquidity of the Common Shares could be adversely affected by the
reduced number of shares outstanding after the reverse split and
this could have an adverse effect on the market price of the Common
Shares. If the market price of the Common Shares declines
subsequent to the effectiveness of the reverse split, this will
detrimentally impact our market capitalization and the market value
of our public float. The reverse split may result in some
shareholders owning “odd lots” of less than 100 Common
Shares on a post-reverse split basis that may be more difficult to
sell or require greater transaction costs per share to sell. As a
result of the reverse split, certain shareholders may no longer
have any equity interest in us and therefore would not participate
in our future earnings or growth, if any. The reverse split may not
help generate additional investor interest. There can be no
assurance that the reverse split will result in a per share price
that will attract or satisfy the investing guidelines of
institutional investors or investment funds. As a result, the
trading liquidity of our Common Shares may not necessarily
improve.
Certain
statements included and incorporated by reference in this
prospectus constitute “forward-looking statements”
within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and/or “forward-looking
information” under the Securities Act (Ontario). These
statements include, without limitation, statements expressed or
implied regarding our expectations regarding the completion of this
offering, the expected gross proceeds, the expected use of proceeds
and the expected closing of the offering, our expectations regarding the one-for-ten
reverse split, our ability to realize
any anticipated benefits from the reverse split, our plans,
goals and milestones, status of developments or expenditures
relating to our business, plans to fund our current activities, and
statements concerning our partnering activities, health regulatory
submissions, strategy, future operations, future financial
position, future sales, revenues and profitability, projected
costs, and market penetration. In some cases, you can identify
forward-looking statements by terminology such as
“appear,” “unlikely,” “target,”
“may,” “will,” “should,”
“expects,” “plans,” “plans to,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“confident,” “prospects,”
“potential,” “continue,”
“intends,” “look forward,”
“could,” “would,” “projected,”
“goals”, “set to,” “seeking,”
or the negative of such terms or other comparable terminology. We
made a number of assumptions in the preparation of our
forward-looking statements. You should not place undue reliance on
our forward-looking statements, which are subject to a multitude of
known and unknown risks and uncertainties that could cause actual
results, future circumstances or events to differ materially from
those stated in or implied by the forward-looking
statements.
16
Risks,
uncertainties and other factors that could affect our actual
results include, but are not limited to, the effects of general
economic conditions, securing and maintaining corporate alliances,
our estimates regarding our capital requirements, and the effect of
capital market conditions and other factors, including the current
status of our product development programs, on capital
availability, the estimated proceeds (and the expected use of any
proceeds) we may receive from this or any other offering of our
securities, the potential dilutive effects of this or any future
financing, potential liability from and costs of defending pending
or future litigation, our ability to maintain compliance with the
continued listing requirements of the principal markets on which
our securities are traded, including risks or uncertainties related
to our ability to implement our plan to comply with Nasdaq’s
continued listing standards, our programs regarding research,
development and commercialization of our product candidates, the
timing of such programs, the timing, costs and uncertainties
regarding obtaining regulatory approvals to market our product
candidates and the difficulty in predicting the timing and results
of any product launches, the timing and amount of profit-share
payments from our commercial partners, and the timing and amount of
any available investment tax credits. Other factors that could
cause actual results to differ materially include but are not
limited to:
●
the actual or
perceived benefits to users of our drug delivery technologies,
products and product candidates as compared to others;
●
our ability to
establish and maintain valid and enforceable intellectual property
rights in our drug delivery technologies, products and product
candidates;
●
the scope of
protection provided by intellectual property rights for our drug
delivery technologies, products and product
candidates;
●
recent and future
legal developments in the United States and elsewhere that could
make it more difficult and costly for us to obtain regulatory
approvals for our product candidates and negatively affect the
prices we may charge;
●
increased public
awareness and government scrutiny of the problems associated with
the potential for abuse of opioid-based medications, pursuing
growth through international operations could strain our
resources;
●
our limited
manufacturing, sales, marketing or distribution capability and our
reliance on third parties for such;
●
the actual size of
the potential markets for any of our products and product
candidates compared to our market estimates;
●
our selection and
licensing of products and product candidates;
●
our ability to
attract distributors and/or commercial partners with the ability to
fund patent litigation and with acceptable product development,
regulatory and commercialization expertise and the benefits to be
derived from such collaborative efforts;
●
sources of revenues
and anticipated revenues, including contributions from distributors
and commercial partners, product sales, license agreements and
other collaborative efforts for the development and
commercialization of product candidates;
●
our ability to
create an effective direct sales and marketing infrastructure for
products we elect to market and sell directly;
●
the rate and degree
of market acceptance of our products;
●
delays in product
approvals that may be caused by changing regulatory
requirements;
17
●
the difficulty in
predicting the timing of regulatory approval and launch of
competitive products;
●
the difficulty in
predicting the impact of competitive products on volume, pricing,
rebates and other allowances;
●
the number of
competitive product entries, and the nature and extent of any
aggressive pricing and rebate activities that may
follow;
●
the inability to
forecast wholesaler demand and/or wholesaler buying
patterns;
●
seasonal
fluctuations in the number of prescriptions written for our generic
Focalin XR®
capsules, and our generic Seroquel XR®
tablets, which may produce substantial fluctuations in
revenue;
●
the timing and
amount of insurance reimbursement regarding our
products;
●
changes in laws and
regulations affecting the conditions required by the FDA for
approval, testing and labeling of drugs including abuse or overdose
deterrent properties, and changes affecting how opioids are
regulated and prescribed by physicians;
●
changes in laws and
regulations, including Medicare and Medicaid, affecting among other
things, pricing and reimbursement of pharmaceutical
products;
●
the effect of
recently-enacted changes in U.S. federal income tax laws,
including, but not limited to, limitations on the deductibility of
business interest, limitations on the use of net operating losses
and application of the base erosion minimum tax, on our U.S.
corporate income tax burden;
●
the success and
pricing of other competing therapies that may become
available;
●
our ability to
retain and hire qualified employees;
●
the availability
and pricing of third-party sourced products and
materials;
●
challenges related
to the development, commercialization, technology transfer,
scale-up, and/or process validation of manufacturing processes for
our products or product candidates;
●
the manufacturing
capacity of third-party manufacturers that we may use for our
products;
●
potential product
liability risks;
●
the recoverability
of the cost of any pre-launch inventory should a planned product
launch encounter a denial or delay of approval by regulatory
bodies, a delay in commercialization, or other potential
issues;
●
the successful
compliance with FDA, Health Canada and other governmental
regulations applicable to us and our third-party
manufacturers’ facilities, products and/or
businesses;
●
our reliance on
commercial partners, and any future commercial partners, to market
and commercialize our products and, if approved, our product
candidates;
●
difficulties,
delays or changes in the FDA approval process or test criteria for
ANDAs and NDAs;
●
challenges in
securing final FDA approval for our product candidates, including
our Oxycodone ER product candidate in particular, if a patent
infringement suit is filed against us with respect to any
particular product candidates (such as in the case of Oxycodone
ER), which could delay the FDA’s final approval of such
product candidates;
●
healthcare reform
measures that could hinder or prevent the commercial success of our
products and product candidates;
●
the FDA may not
approve requested product labeling for our product candidate(s)
having abuse-deterrent properties and targeting common forms of
abuse (oral, intra-nasal and intravenous);
18
●
risks associated
with cyber-security and the potential for vulnerability of our
digital information or the digital information of a current and/or
future drug development or commercialization partner of ours;
and
●
risks arising from
the ability and willingness of our third-party commercialization
partners to provide documentation that may be required to support
information on revenues earned by us from those commercialization
partners.
Additional risks
and uncertainties relating to us and our business can be found in
the “Risk Factors” section of this prospectus, as well
as in our other public filings incorporated by reference herein.
The forward-looking statements reflect our current views with
respect to future events, and are based on what we believe are
reasonable assumptions as of the date hereof, and 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 into the future
or that any conclusion reached herein will necessarily be
indicative of our actual operating results.
The
following table sets out the high and low rates of exchange for one
U.S. dollar expressed in Canadian dollars in effect at the end of
each of the following periods; the average rate of exchange for
those periods; and the rate of exchange in effect at the end of
each of those periods, each based on the closing rate published by
the Bank of Canada.
|
|
Period-End
|
Average
for Period
|
Low
|
High
|
|
|
(Cdn
dollar per U.S. dollar)
|
|||
|
Year
Ended November 30:
|
|
|
|
|
|
2013
|
1.0620
|
1.0241
|
0.9837
|
1.0620
|
|
2014
|
1.1440
|
1.0971
|
1.0587
|
1.1440
|
|
2015
|
1.3353
|
1.2603
|
1.1328
|
1.3418
|
|
2016
|
1.3429
|
1.3276
|
1.2536
|
1.4559
|
|
2017
|
1.2888
|
1.3030
|
1.2128
|
1.3743
|
|
Month
Ended:
|
|
|
|
|
|
January 31,
2018
|
1.2293
|
1.2427
|
1.2293
|
1.2535
|
|
February 28,
2018
|
1.2809
|
1.2586
|
1.2288
|
1.2809
|
|
March 31,
2018
|
1.2894
|
1.2932
|
1.2830
|
1.3088
|
|
April 30,
2018
|
1.2836
|
1.2733
|
1.2552
|
1.2908
|
|
May 31,
2018
|
1.2948
|
1.2873
|
1.2775
|
1.3020
|
|
June 30,
2018
|
1.3168
|
1.3129
|
1.2913
|
1.3310
|
|
July 31,
2018
|
1.3017
|
1.3130
|
1.3017
|
1.3255
|
|
August 31,
2018
|
1.3055
|
1.3041
|
1.2917
|
1.3152
|
|
September 1 to 18,
2018
|
1.2992
|
1.3098
|
1.2992
|
1.3188
|
On
September 18, 2018, the closing rate for Canadian dollars in terms
of the United States dollar, as reported by the Bank of Canada, was
U.S. $1.00=Cdn$1.2992 or Cdn$1.00=U.S. $0.7697.
If you
invest in Common Shares in this offering, your interest will be
diluted to the extent of the difference between the effective
public offering price per Common Share included in the Units or
issuable upon the exercise of the Pre-Funded Warrants and the pro
forma as adjusted net tangible book value per Common Share after
this offering. As of May 31, 2018, our historical net tangible book
value was approximately $(1.03) million, or $(0.24) per Common
Share, based on 4,353,678 Common Shares outstanding as of May 31,
2018 (post-reverse split). Our historical net tangible book value
per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities, divided by the
total number of Common Shares outstanding as of May 31,
2018.
After
giving effect to our sale in this offering of Units at an assumed
public offering price per Unit of $ , the last reported sale
price of our Common Shares on Nasdaq on , 2018, assuming no sale of
any Pre-Funded Units in this offering, and after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us, and excluding the proceeds, if any, from
the exercise of the Warrants issued in this offering, our pro forma
as adjusted net tangible book value as of May 31, 2018 would have
been $
million, or $ per share. This
represents an immediate increase of pro forma net tangible book
value of $
per share to our existing shareholders and an immediate dilution of
pro forma net tangible book value of $ per share to investors
purchasing Units in this offering. The following table illustrates
this per share dilution.
19
|
Assumed public
offering price per Common Share included in each Unit
|
|
$
|
|
Net tangible book
value (deficit) per share as of May 31, 2018 before giving effect
to this offering
|
$
|
|
|
Decrease in net
tangible book value per share attributable to investors purchasing
in this offering
|
|
|
|
As adjusted net
tangible book value per share as of May 31, 2018 after giving
effect to this offering
|
|
|
|
Dilution per share
to investors purchasing in this offering
|
|
$
|
Each
$0.25 increase or decrease in the assumed public offering price per
Unit of $ , the last reported sale price of our Common Shares
on Nasdaq on , 2018, would increase or decrease the net proceeds to
us from this offering by $ million, increase or
decrease our pro forma as adjusted net tangible book value per
share after this offering by approximately $ , and increase or
decrease the dilution per share to new investors purchasing in this
offering by $ , assuming that the
number of Units offered by us, as set forth on the cover page of
this prospectus, remains the same, assuming no sale of any
Pre-Funded Units, after deducting the estimated underwriter
discounts and commissions and estimated offering expenses payable
by us, and excluding the proceeds, if any, from the exercise of the
Warrants issued pursuant to this offering. We may also increase or
decrease the number of Units offered in this offering. Each
increase or decrease of Units offered by us
would increase or decrease the net proceeds to us by approximately
$ million,
increase or decrease our pro forma as adjusted net tangible book
value per share after this offering by $ , and increase or
decrease the dilution per share to new investors purchasing in this
offering by $ , assuming the assumed
public offering price per Unit of $ remains the same, assuming no
sale of any Pre-Funded Units, after deducting the underwriting
discounts and commissions and estimated offering expenses payable
by us, and excluding the proceeds, if any, from the exercise of the
Warrants issued pursuant to this offering. The as-adjusted
information discussed above is illustrative only and will be
adjusted based on the actual public offering price and other terms
of this offering as determined between us and the underwriter at
pricing.
If the
underwriter exercises its option to purchase additional Units in
full, and assuming no sale of any Pre-Funded Units in this
offering, the pro forma as adjusted net tangible book value per
share after this offering would be $ per share, the
increase in pro forma net tangible book value per share to existing
shareholders would be $ per share and the
dilution to new investors purchasing Units in this offering would
be $ per
share.
The
above discussion and table are based on 4,353,678 Common Shares
outstanding as of May 31, 2018, actual,
and Common Shares outstanding as of
May 31, 2018, pro forma, and excludes:
●
an aggregate of
561,316 Common Shares issuable upon the exercise of outstanding
options, with a weighted average exercise price of U.S. $31.50 per
Common Share;
●
up to 150,455
additional Common Shares that have been reserved for issuance in
connection with future grants under our stock option
plan;
●
an aggregate of
824,570 Common Shares issuable upon the exercise of outstanding
Common Share purchase warrants, with a weighted average exercise
price of U.S. $9.92 per Common Share;
●
an aggregate of
10,279 deferred share units granted to non-management directors (to
defer receipt of all or a portion of their Board fees until
termination of the Board service and to receive such fees in the
form of Common Shares at that time);
●
an aggregate of
45,000 Common Shares issuable upon the conversion of the 2013
Debenture;
●
an aggregate of
166,666 Common Shares issuable upon the conversion of the 2018
Debenture;
●
Common Shares
issuable upon exercise of the Pre-Funded Warrants offered hereby at
an exercise price of $0.01 per share;
20
●
Common Shares
issuable upon exercise of the Warrants offered hereby at an
exercise price of $ per share; and
●
Common Shares
issuable upon exercise of the Underwriter’s Warrants offered
hereby at an exercise price of $ per share.
To the
extent that outstanding options or warrants are exercised,
investors purchasing Common Shares in this offering will experience
further dilution. In addition, we may choose to raise additional
capital due to market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future
operating plans. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the
issuance of these securities could result in further dilution to
our shareholders.
The
name and province/state of residence of each of our directors and
officers as of the date of this prospectus, the position presently
held, principal occupation, and the year each director first became
an officer or director of the Company or its predecessor,
IntelliPharmaCeutics Ltd., or IPC Ltd., are set forth 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
or until such director’s death, resignation or removal.
Officers are appointed annually and serve at the discretion of the
Board of Directors.
|
Name and Province of Residence
|
Position held with the Company
|
Officer/Director Since
|
|
Dr. Isa
Odidi
Ontario,
Canada
|
Chairman
of the Board, Chief Executive Officer and Co-Chief Scientific
Officer
|
September
2004
|
|
Dr.
Amina Odidi
Ontario,
Canada
|
President,
Chief Operating Officer, Co-Chief Scientific
Officer and Director
|
September
2004
|
|
Andrew
Patient
Ontario,
Canada
|
Chief Financial Officer
|
September
2017
|
|
Dr.
Eldon R. Smith(1)(2)(3)
Alberta,
Canada
|
Director
|
October
2009
|
|
Bahadur
Madhani(1)(2)(3)
Ontario,
Canada
|
Director
|
March
2006
|
|
Shawn
Graham(3)
New
Brunswick, Canada
|
Director
|
May
2018
|
|
Kenneth
Keirstead(1)(2)(3)
New
Brunswick, Canada
|
Director
|
January
2006
|
(1) Member
of the Audit Committee
(2)
Member of the Compensation Committee
(3) Member
of the Corporate Governance Committee
John
Allport served as the Company’s Vice President, Legal Affairs and
Licensing and as a director from September 2004 until his
resignation effective May 17, 2017. Mr. Allport entered into a
consulting agreement with the Company effective May 17, 2017 to
provide ongoing services to the Company on an as-needed basis.
Michael Campbell served as General Counsel and Corporate Secretary
of the Company from July 10, 2017 until his resignation effective
February 22, 2018.
Family Relationships
Except
Drs. Isa Odidi and Amina Odidi who are spouses to each other,
there are no other family
relationships among any of our officers and
directors.
Isa Odidi, Ph.D., MBA - Chairman, CEO, Co-Chief
Scientific Officer and Executive Director
21
Amina Odidi, Ph.D. - President, COO, Co-Chief
Scientific Officer and Executive Director
Dr. Amina Odidi has served as President, Chief Operating Officer
and Co-Chief Scientific Officer of the Company since September
2004. In 1998, Dr. Odidi co-founded Intellipharmaceutics Inc., the
predecessor of publicly-traded Intellipharmaceutics International
Inc. She has extensive experience developing and applying
proprietary technologies to the development of controlled-release
drug products for third-party pharmaceutical companies. She has
invented or co-invented various proprietary controlled
deliverydevices for the delivery of pharmaceutical, nutriceutical,
biological, agricultural and chemical agents. In the past she has
worked for the pharmaceutical and health care industry. Dr. Odidi
has co-authored eight articles, papers and textbooks. Dr. Odidi
holds a bachelor of science in pharmacy, a master of science in
biopharmaceutics, and a Ph.D. in pharmaceutics from the University
of London.
Andrew Patient, CPA, CA - Chief Financial
Officer
Andrew
Patient has served as the Chief Financial Officer of the Company
since September 2017. Mr. Patient has more than 20 years'
experience with both Nasdaq- and TSX-listed companies, and has deep
expertise in all facets of business, including operations, trade,
finance, regulatory and business development, both nationally and
internationally. In December 2011, Mr. Patient became CFO at Merus
Labs International Inc. (“Merus”), a Nasdaq and TSX
dual-listed specialty pharmaceutical company that owns, markets and
distributes prescription medications. During a five-year period,
Mr. Patient helped grow Merus from a one-drug domestic platform to
a 12-drug, 36 country international platform. At Merus, Mr. Patient
oversaw several significant acquisitions, and implemented a
low-cost operating model with a light infrastructure footprint. Mr.
Patient was responsible for all accounting, finance and treasury
functions, including external regulatory reporting, investor
relations, and negotiating and executing key agreements for
distribution and sales of products. Mr. Patient has been a
Chartered Accountant (Ontario) since 1995.
Bahadur Madhani, CM – Non-Executive
Director
Bahadur Madhani, an accountant by training, has been a director
since March 2006. Since 1983, Mr. Madhani's principal occupation
has been President and CEO of Equiprop Management Limited, a
Canadian property management company of which he is the principal
shareholder. At present, he is also on the Board of the YMCA of
Toronto and YMCA Canada. He was previously a member of the advisory
board of Quebecor Ontario. He has also served as Chairman of United
Way of Toronto, Chairman of the YMCA of greater Toronto, and
Chairman of the Nelson Mandela Children's Fund of Canada. Mr.
Madhani was awarded membership in the Order of Canada in
2001.
Eldon Smith, OC, MD, FRCPC – Non-Executive
Director
Dr. Eldon Smith 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 theCanadian 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
appointedby the Honorable 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 and Aston Hill Financial Inc., and Resverlogix
Corp.
Kenneth Keirstead – Non-Executive
Director
Kenneth
Keirstead has served as a director of the Company since January
2006. Mr. Keirstead is educated in clinical biochemistry and
business administration. He has worked in the health care delivery
and pharmaceutical industries for over 45 years. Since 1998, Mr.
Keirstead's principal occupation has been Executive Manager of the
Lyceum Group, a Canadian consulting services company primarily
active in the health care field, of which he is the founder. In
addition, he was President and CEO of Sanofi Winthrop Canada Inc.,
General Manager of Squibb Medical Systems International, President
of Chemfet International and President of Quinton Instruments,
among other positions. He has published studies and reports on
health care and related services.
Shawn R. Graham –
Non-Executive Director
Shawn Graham has been a director of the Company since May 2018. Mr.
Graham is the President and CEO of G&R Holdings Inc., which
assists companies with developing and implementing global projects
and business alliance strategies with a special focus on
globalizing with China. From October 2006 until October 2010, Mr.
Graham served as 31st Premier of Province of New Brunswick. He is a
former Chair of the Council of The Federation, Co-chair of
Northeastern Governors and Eastern Canadian Premiers, and Co-chair
of a Pan-Canadian trade mission to China. He is currently a member
of the advisory board of the faculty of business, University of New
Brunswick, Saint John as well as a national board member to Ducks
Unlimited Canada. Mr. Graham has been awarded an Honorary Doctor of
Laws Degree from the University of New
Brunswick.
22
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.
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 Board has adopted a written charter setting forth the authority
and responsibilities of the Audit Committee, which is available on
our website at
https://ir.intellipharmaceutics.com.
Compensation Committee
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. In
addition, the Compensation Committee is responsible
for:
● evaluating
and approving all compensation of executive officers including
salaries, bonuses and equity compensation that are required to be
determined;
● reviewing
the Company's option plan, the employee restricted share unit plan
and the deferred share unit plan on an annual
basis;
● reviewing
and making recommendations to the Board on compensation payable to
senior officers of the Company to be hired subsequent to the
adoption of the Charter; and
● producing
a report annually on executive officer compensation for inclusion
in the proxy circular of the Company.
The Board has adopted a written charter setting forth the authority
and responsibilities of the Compensation Committee, which is
available on our website at
https://ir.intellipharmaceutics.com.
Corporate Governance Committee
The
Corporate Governance Committee of the Board is a standing committee
of the Board whose primary function is to assisting the Board in
dealing with the corporate governance matters as well as monitoring
and making recommendations with respect to the following
matters:
● shareholder
and investor issues including the adoption of shareholders rights
plans and related matters;
● policies
regarding management serving on outside boards;
● the
Company's Code of Business Conduct and Ethics and compliance
therewith, including the granting of any waivers
from the application of the Code;
● the
Company's Stock Trading Policy and compliance therewith, including
reviewing systems for ensuring that all directors
and officers of the Company who are required to file insider
reports pursuant to the Policy do so;
23
● the
Company's Corporate Disclosure Policy and compliance
therewith;
● succession
planning key management positions on an annual
basis;
● considering
minimum stock holding requirements for directors and senior
executives;
● reviewing
and approving the charters of all Board committees on an annual
basis;
● reviewing,
reporting and if deemed appropriate recommending to the Board the
status of Director compensation in relation
to
other comparable companies;
● monitoring
and making recommendations to management as are considered
appropriate regarding the conduct of the Company's
business and affairs in a socially responsible manner;
● considering
and making recommendations to the Board on such conflicts of
interest, if any, as arise in the conduct of
business;
● monitoring
and communicating with management and other committees to ensure
timely and qualitative reporting; and
● such
other matters related to the corporate governance of the Company,
if any, as may be requested from time to time
by the Board.
The Board has adopted a written charter setting forth the authority
and responsibilities of the Compensation Committee, which is
available on our website at
https://ir.intellipharmaceutics.com.
Executive Compensation
The
following table sets forth all direct and indirect compensation
for, or in connection with, services provided to the Company for
the fiscal years ended November 30, 2017 and November 30, 2016 in
respect of the Chief Executive Officer of the Company, the Chief
Financial Officers (current and former), and two other officers of
the Company who earned greater than $150,000 in total compensation
in the fiscal year ended November 30, 2017 and November 30, 2016
(“Named Executive
Officers”).
|
Name and principal position
|
Year
|
Salary
|
Share-based awards
|
Option-based awards(1)
|
Annual incentive plans(2)
|
All other compensation (3)
|
Total compensation
|
|
Dr. Isa Odidi,
Chairman, Chief Executive Officer and Co-Chief Scientific
Officer
|
2017
|
343,430
|
-
|
1,609,573
|
-
|
13,676
|
1,966,680
|
|
|
2016
|
340,464
|
-
|
703,016
|
340,464
|
13,558
|
1,397,502
|
|
Dr. Amina Odidi,
President, Chief Operating Officer and Co-Chief
Scientific Officer
|
2017
|
343,430
|
-
|
1,609,573
|
-
|
13,676
|
1,966,680
|
|
|
2016
|
340,464
|
-
|
703,016
|
340,464
|
13,558
|
1,397,502
|
|
John Allport,
Former VP Legal Affairs & Licensing(4)
|
2017
|
59,676
|
-
|
-
|
-
|
7,408
|
67,084
|
|
|
2016
|
109,220
|
-
|
50,346
|
56,493
|
13,558
|
229,617
|
|
Domenic Della
Penna, Former Chief Financial Officer(5)
|
2017
|
189,662
|
-
|
-
|
-
|
10,257
|
199,919
|
|
|
2016
|
225,972
|
-
|
64,076
|
112,986
|
13,558
|
416,592
|
|
Andrew Patient,
Chief Financial Officer(5)
|
2017
|
54,395
|
-
|
19,800
|
-
|
3,419
|
77,614
|
|
|
2016
|
-
|
-
|
-
|
-
|
-
|
-
|
Notes:
(1) Represents Black-Scholes value of vesting Common Share option
grants.
(2)
Bonus awarded at the discretion of the Board.
(3)
“All other
compensation” includes
car allowances and other miscellaneous benefits.
(4) Mr.
Allport, a consultant to the Company, served as the
Company’s Vice President,
Legal Affairs and Licensing and as a director from September 2004
until his resignation effective on May 17, 2017.
(5) Mr.
Della Penna served as the Company’s Chief Financial Officer from
November 24, 2014 until his resignation effective on September 6,
2017.
24
(6) Mr.
Patient was appointed as Chief Financial Officer of the Company
effective September 6, 2017.
Director Compensation
The
following table sets forth all amounts of compensation provided to
the non-executive directors (except for Mr. Graham who was elected
to the Board in May 2018) for the Company’s most recently completed fiscal
year.
|
Name
|
Fees
earned
|
Share-based
awards(1)
|
Option-based
awards(2)
|
Non-equity
incentive plan compensation
|
All
other compensation
|
Total
|
|
|
|
|
|
|
|
|
|
Eldon
Smith
|
-
|
$C40,000
|
$C18,442
|
-
|
-
|
$C58,442
|
|
Kenneth
Keirstead
|
$C40,000
|
-
|
$C18,442
|
-
|
-
|
$C58,442
|
|
Bahadur
Madhani
|
$C45,000
|
-
|
$C18,442
|
-
|
-
|
$C63,442
|
Notes:
(1)
Deferred share units that were earned. Does not include Deferred
share units earned in the previous financial year and granted in
the most recently completed financial year.
(2)
Option-based awards for fiscal year 2017 were issued on November
30, 2017.
25
Incentive Plan Awards
The
following table sets forth all awards outstanding at the end of the
most recently completed financial year, including awards granted
before the most recently completed financial year.
|
Name
|
Number
of securities underlying unexercised options
|
Option
exercise price
|
Option
expiration date
|
|
Drs. Isa Odidi and
Amina Odidi(1)
|
276,394
|
$US36.20
|
Sept. 10,
2018
|
|
Dr. Isa
Odidi
|
30,000
7,500
5,000
7,000
9,000
7,000
|
C$32.70
C$18.10
C$42.90
C$25.20
C$24.20
C$11.50
|
Feb.
16, 2022
Apr.
13. 2020
Feb.
28, 2019
Nov.
30, 2020
Aug.
31, 2021
Nov.
30, 2022
|
|
Dr. Amina
Odidi
|
30,000
7,500
5,000
7,000
9,000
7,000
|
C$32.70
C$18.10
C$42.90
C$25.20
C$24.20
C$11.50
|
Feb. 16,
2022
Apr. 13.
2020
Feb. 28,
2019
Nov. 30,
2020
Aug. 31,
2021
Nov. 30,
2022
|
|
Andrew Patient,
Chief Financial Officer(2)
|
6,000
1,500
|
C$12.70
C$11.50
|
Oct. 20,
2027
Nov. 30,
2022
|
|
John
Allport(3)
|
25,000
2,500
5,000
4,000
5,500
|
C$32.70
C$18.10
C$42.90
C$25.20
C$24.20
|
Feb. 16.
2022
Apr. 13,
2020
Feb. 28,
2019
Nov. 30,
2020
Aug. 31,
2021
|
|
Eldon
Smith
|
1,000
2,500
3,750
3,750
2,000
3,500
4,000
|
C$28.80
C$18.10
C$32.20
C$42.90
C$25.20
C$24.20
C$1150
|
Oct. 22,
2019
Apr. 13,
2020
Nov. 30,
2019
Feb. 28,
2019
Nov. 30,
2020
Aug. 31,
2021
Nov. 30,
2022
|
|
Kenneth
Keirstead
|
1,000
2,500
3,750
3,750
2,000
3,500
4,000
|
C$28.80
C$18.10
C$32.20
C$42.90
C$25.20
C$24.20
C$11.50
|
Oct. 22,
2019
Apr. 13,
2020
Nov. 30,
2019
Feb. 28,
2019
Nov. 30,
2020
Aug. 31,
2021
Nov. 30,
2022
|
|
Bahadur
Madhani
|
1,000
2,500
3,750
3,750
2,000
3,500
4,000
|
C$28.80
C$18.10
C$32.20
C$42.90
C$25.20
C$2420
C$11.50
|
Oct. 22,
2019
Apr. 13,
2020
Nov. 30,
2019
Feb. 28,
2019
Nov. 30,
2020
Aug. 31,
2021
Nov. 30,
2022
|
Notes:
(1)
These option-based awards are held jointly.
(2) Mr.
Patient was appointed as Chief Financial Officer of the Company
effective September 6, 2017.
(3) Mr.
Allport, a consultant to the Company, served as the Company’s
Vice President Legal Affairs and Licensing and as a director from
September 2004, until his resignation May 17, 2017.
26
Employment Agreements
The
employment agreement with Dr. Isa Odidi, the Chief Executive
Officer and Co-Chief
Scientific 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, and is
increased annually by 20% of the prior year’s base salary. In addition, he is
entitled to: (a) participate in the Company’s option plan;
(b) participate in all employee benefit plans and programs, except
for the Company’s deferred share unit 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, or
until September 30, 2010, on the same terms and conditions. The
agreement will continue to be extended automatically for successive
additional three-year periods on the same terms unless the Company
gives Dr. Odidi 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 include intellectual property, non-competition and
non-solicitation provisions. In April 2010, Dr. Isa Odidi’s
employment agreement was amended effective as of December 1, 2009,
to eliminate the right to annual increases in his base salary of
20% each year and 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, or C$452,000 per year.
Pursuant to such amendment, Dr. Isa Odidi’s base salary is
subject to increase on an annual basis at the discretion of the
Board, and Dr. Isa Odidi is eligible to receive a bonus based on
his performance and that of the Company, as determined by the
Board
The
employment agreement with Dr. Amina Odidi, the President, Chief
Operating Officer and Co-Chief
Scientific Officer of the Company, effective September 1,
2004 entitles Dr. Amina Odidi to receive a base salary of
U.S.$200,000 per year, which is paid in Canadian dollars, and is
increased annually by 20% of the prior year’s base 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 deferred
share unit 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, or until September 30, 2010,
on the same terms and conditions. The agreement will continue to be
extended automatically for successive additional three-year periods
on the same terms unless the Company gives Dr. Odidi 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 include
intellectual property, non-competition and non-solicitation
provisions. In April 2010, Dr. Amina Odidi’s employment
agreement was amended effective as of December 1, 2009, to
eliminate the right to annual increases in her base salary of 20%
each year and 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. Pursuant to such amendment, Dr. Amina Odidi’s base
salary is subject to increase on an annual basis at the discretion
of the Board, and Dr. Amina Odidi is eligible to receive a bonus
based on her performance and that of the Company, as determined by
the Board.
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 276,394 of the Company’s Common Shares. These options were
not granted under the Company’s option plan. These options
vest upon the Company attaining certain milestones related to the
FDA filings and approvals for the Company’s products and
product candidates. The options are exercisable at a price of
$36.20 per share and expired in September 2014. Effective March 27,
2014, the Company’s
shareholders approved a two year extension of the performance-based
stock option expiry date to September 2016. Effective April 19,
2016, the Company’s
shareholders approved a further two year extension of the
performance-based stock option expiry date to September 2018.
Effective May 15, 2018, the Company’s shareholders approved a
further two year extension of the performance-based stock option
expiry date to September 2020.
The
employment agreement with Andrew Patient, the Chief Financial
Officer of the Company, dated August 30, 2017, effective September
6, 2017, entitles Mr. Patient to receive a base salary of C$300,000
per year, which is paid in Canadian dollars. 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$1,500 per month. The agreement provides for automatic renewal on
December 31 each year from year to year in absence of notice of
termination from the Company at least 90 days prior to the end of
the then applicable term. Mr. Patient’s employment agreement contains
intellectual property, non-competition and non-solicitation
provisions.
27
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
Dr. Isa Odidi and Dr. Amina Odidi
The
employment agreement with each of Dr. Isa Odidi and Dr. Amina Odidi
(collectively the “Odidis”), by virtue of it
being a fixed-term agreement with automatic renewal provisions,
effectively provides for payments to the Odidis following
termination of the employment agreement unless the agreement has
been terminated in accordance with its terms. As a result, if
either of the Odidis had been terminated on the last business day
of the Company’s most
recently completed fiscal year, it is estimated that an amount of
up to approximately C$2.2 million would be payable to each of the
Odidis, which is the amount that would have been payable through to
September 30, 2022, at each of the Odidis’ current annual base salary 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, 2022, then the amount payable upon termination
to the Odidis will decrease to the point where no amount would be
payable upon termination as at September 30, 2022. Any termination
of the employment of the Odidis 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 Odidis relating
to a change of control of the Company.
Andrew Patient
If
Andrew Patient’s employment agreement is terminated without
cause, Mr. Patient shall be entitled to three months’ base
salary, plus six weeks’ base salary for every full year of
service, up to a combined maximum of twelve months. If such
termination occurs within six months of a change of control of the
Company, Mr. Patient shall be entitled to thirteen months’
base salary, plus six weeks’ base salary for every full year
of service, up to a combined maximum of eighteen
months.
History and Development of the Company
The
Company was formed under the CBCA 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.
Our
agent for service in the United States is Corporation Service
Company at 1090 Vermont Avenue N.W., Washington, D.C.
20005.
On
October 19, 2009, the shareholders of IPC Ltd. and Vasogen
Inc., or Vasogen, approved the IPC Arrangement Agreement that
resulted in the October 22, 2009 court-approved merger of IPC
Ltd. and another U.S. subsidiary of Intellipharmaceutics, Inc.
coincident with an arrangement pursuant to which a predecessor of
the Company combined with 7231971 Canada Inc., a new 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. The completion of that transaction that
occurred on October 22, 2009 resulted in the formation of the
Company, which is governed by the CBCA. The Common Shares of the
Company are traded on the TSX and Nasdaq. See “Prospectus
Summary—Recent Developments—Nasdaq Notices and Nasdaq
Hearings Panel Grant of Request for Continued Listing” and
“—Risk Factors--Our Common Shares will be delisted from
the Nasdaq Capital Market if we do not satisfy certain requirements
of the Nasdaq Hearing Panel by September 28, 2018” in this
prospectus for important information about the listing of our
Common Shares on Nasdaq.
28
In this
prospectus, any prospectus supplement, and/or the documents
incorporated by reference herein or therein, unless the context
otherwise requires, the terms “we,” “us,”
“our,” “Intellipharmaceutics,” and the
“Company” refer to Intellipharmaceutics International
Inc. and its subsidiaries.
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 patented
Hypermatrix™ technology 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, we have developed several drug delivery systems and a
pipeline of products (some of which have received FDA approval) and
product candidates in various stages of development, including
ANDAs filed with the FDA and one ANDS filed with Health Canada and
one NDA filing, in therapeutic areas that include neurology,
cardiovascular, gastrointestinal tract, diabetes and
pain.
In
November 2005, we entered into a license and commercialization
agreement, as amended on August 12, 2011 and September 24, 2013
(the “Par Agreement”), with Par Pharmaceutical, Inc.
(“Par”), pursuant to which we granted Par an exclusive,
royalty-free license to make and distribute in the U.S. all
strengths of our generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules for a
period of ten years from the date of commercial launch which was
November 19, 2013. Under the Par Agreement, we made a filing
with the FDA for approval to market generic Focalin XR® capsules in
various strengths in the U.S. (the “Company ANDA”), and
are the owner of that Company ANDA, as approved in part by the FDA.
We retain the right to make and distribute all strengths of the
generic product outside of the U.S. Calendar quarterly
profit-sharing payments for its U.S. sales under the Company ANDA
are payable by Par to us as calculated pursuant to the Par
Agreement. Within the purview of the Par Agreement, Par also
applied for and owns an ANDA pertaining to all marketed strengths
of generic Focalin XR® (the “Par
ANDA”), and is now approved by the FDA to market generic
Focalin XR® capsules in all
marketed strengths in the U.S. As with the Company ANDA, calendar
quarterly profit-sharing payments are payable by Par to us for its
U.S. sales of generic Focalin XR® under the Par
ANDA as calculated pursuant to the Par Agreement.
We
received final approval from the FDA in November 2013 under the
Company ANDA to launch the 15 and 30 mg strengths of our generic
Focalin XR® capsules.
Commercial sales of these strengths were launched immediately by
our commercialization partner in the U.S., Par.
In
January 2017, Par launched the 25 and 35 mg strengths of its
generic Focalin XR® capsules in the
U.S., and in May 2017, Par launched the 10 and 20 mg strengths,
complementing the 15 and 30 mg strengths of our generic Focalin
XR®
marketed by Par. The FDA granted final approval under the Par ANDA
for its generic Focalin XR® capsules in the
5, 10, 15, 20, 25, 30, 35 and 40 mg strengths, and subsequently,
Par launched the remaining 5 and 40 mg strengths. Under the Par
Agreement, we receive quarterly profit share payments on
Par’s U.S. sales of generic Focalin XR®. We currently
expect revenues from sales of the generic Focalin XR® capsules to
improve over the longer term; however, results for the next several
quarters are expected to continue to be impacted by ongoing
competitive pressures in the generic market. There can be no
assurance whether revenues from this product will improve going
forward or that any recently launched strengths will be
successfully commercialized. We depend significantly on the actions
of our marketing partner, Par, in the prosecution, regulatory
approval and commercialization of our generic Focalin
XR®
capsules and on its timely payment to us of the contracted calendar
quarterly payments as they come due.
In
February 2017, we received final approval from the FDA for our ANDA
for metformin hydrochloride extended-release tablets in the 500 and
750 mg strengths. This product is a generic equivalent for the
corresponding strengths of the branded product
Glucophage® XR sold in the
U.S. by Bristol-Myers Squibb. The Company is aware that several
other generic versions of this product are currently available that
serve to limit the overall market opportunity for this product. We
are continuing to evaluate options to realize commercial returns on
this product, particularly in international markets. There can be
no assurance that our metformin hydrochloride extended-release
tablets for the 500 and 750 mg strengths will be successfully
commercialized.
29
In
February 2016, we received final approval from the FDA of our ANDA
for generic Keppra XR® (levetiracetam
extended-release) tablets for the 500 and 750 mg strengths. Our
generic Keppra XR® is a generic
equivalent for the corresponding strengths of the branded product
Keppra XR® sold in the
U.S. by UCB, Inc., and is indicated for use in the treatment of
partial onset seizures associated with epilepsy. We are aware that
several other generic versions of this product are currently
available that serve to limit the overall market opportunity. We
are actively exploring the best approach to maximize our commercial
returns from this approval and are looking at several international
markets where, despite lower volumes, product margins are typically
higher than in the U.S. There can be no assurance that our generic
Keppra XR® for the 500 and
750 mg strengths will be successfully commercialized.
In
October 2016, we received tentative approval from the FDA for our
ANDA for quetiapine fumarate extended-release tablets in the 50,
150, 200, 300 and 400 mg strengths, and in May 2017, our ANDA
received final FDA approval for all of these strengths. Our
approved product is a generic equivalent for the corresponding
strengths of the branded product Seroquel XR® sold in the
U.S. by AstraZeneca Pharmaceuticals LP, or AstraZeneca. Pursuant to
a settlement agreement between us and AstraZeneca dated July 30,
2012, we were permitted to launch our generic versions of the 50,
150, 200, 300 and 400 mg strengths of generic Seroquel
XR®
on November 1, 2016, subject to FDA final approval of our ANDA for
those strengths. The Company manufactured and shipped commercial
quantities of all strengths of generic Seroquel XR® to our
marketing and distribution partner Mallinckrodt LLC
(“Mallinckrodt”), and Mallinckrodt launched all
strengths in June 2017. In October 2016, we announced a license and
commercial supply agreement with Mallinckrodt, or
(“Mallinckrodt Agreement”), granting Mallinckrodt an
exclusive license to market, sell and distribute in the U.S. the
following extended-release drug product candidates (the
“licensed products”) which have either been launched
(generic Seroquel XR®) or for which
we have ANDAs filed with the FDA:
●
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®) –
approved and launched;
●
Desvenlafaxine
extended-release tablets (generic Pristiq®) – ANDA
under FDA review; and
●
Lamotrigine
extended-release tablets (generic Lamictal® XR™) – ANDA
under FDA review.
Under
the terms of the ten-year agreement with Mallinckrodt, we received
a non-refundable upfront payment of $3 million in October 2016. In
addition, the agreement also provides for a long-term profit
sharing arrangement with respect to these licensed products (which
includes up to $11 million in cost recovery payments that are
payable on future sales of licensed product). We have agreed to
manufacture and supply the licensed products exclusively for
Mallinckrodt on a cost plus basis. The Mallinckrodt Agreement
contains customary terms and conditions for an agreement of this
kind, and is subject to early termination in the event we do not
obtain FDA approvals of the Mallinckrodt licensed products by
specified dates, or pursuant to any one of several termination
rights of each party. Upon the expiration of the initial term, and
absent any early termination actions, the Mallinckrodt Agreement
will be automatically renewed for additional and consecutive terms
of one year (the 12-month period coinciding with
Mallinckrodt’s regularly established fiscal months), absent
notice of non-renewal given by one party to the other at least 180
days prior to the end of the initial or renewal term.
Our
goal is to leverage our proprietary technologies and know-how in
order to build a diversified portfolio of revenue generating
commercial products. We intend to do this by advancing our products
from the formulation stage through product development, regulatory
approval and manufacturing. We believe that full integration of
development and manufacturing will help maximize the value of our
drug delivery technologies, products and product candidates. We
also believe that out-licensing sales and marketing to established
organizations, when it makes economic sense, will improve our
return from our products while allowing us to focus on our core
competencies. We expect our expenditures for the purchase of
production, laboratory and computer equipment and the expansion of
manufacturing and warehousing capability to be higher as we prepare
for the commercialization of ANDAs, one NDA and one ANDS that are
pending FDA and Health Canada approval, respectively.
Our Strategy
Our
Hypermatrix™ technologies
are central to the development and manufacture of novel and generic
controlled-release and targeted-release oral solid dosage drugs.
The Hypermatrix™ technologies
are a multidimensional controlled-release drug delivery platform
that we believe can be applied to the efficient development of a
wide range of existing and new pharmaceuticals. We believe that the
flexibility of these technologies allows us to develop complex drug
delivery solutions within an industry-competitive timeframe. Based
on this technology platform, we have developed several drug
delivery systems and a pipeline of products (some of which have
received FDA approval) and product candidates in various stages of
development, including ANDAs filed with the FDA and one ANDS filed
with Health Canada and one NDA filing, in therapeutic areas that
include neurology, cardiovascular, GIT, diabetes and pain. We
expect that 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 commercialization partner may pay certain of the expenses of
development, make certain milestone payments to us and receive a
share of revenues or profits if the drug is developed successfully
to completion, the control of which would generally be in the
discretion of our drug development partner.
30
The
principal focus of our development activities previously targeted
difficult-to-develop controlled-release generic drugs which follow
an ANDA regulatory path. Our current development effort is
increasingly directed towards improved difficult-to-develop
controlled-release drugs which follow an NDA 505(b)(2) regulatory
pathway. We have increased our research and development emphasis
towards specialty new product development, facilitated by the
505(b)(2) regulatory pathway, by advancing the product development
program for both Oxycodone ER and Regabatin™. We have also
identified several additional 505(b)(2) product candidates for
development in various indication areas including cardiovascular,
dermatology, pulmonary disease and oncology. The technology that is
central to our abuse deterrent formulation of our Oxycodone ER is
the novel Point of Divergence Drug Delivery System
(“nPODDDS™”).
nPODDDS™ 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.
In
addition, our Paradoxical OverDose Resistance Activating System, or
PODRAS™, delivery
technology was initially introduced to enhance our Oxycodone ER
product candidate. The PODRAS™ delivery
technology platform was designed to prevent overdose when more
pills than prescribed are swallowed intact. Preclinical studies of
prototypes of oxycodone with PODRAS technology suggest that, unlike
other third-party abuse-deterrent oxycodone products in the
marketplace, if more tablets than prescribed are deliberately or
inadvertently swallowed, the amount of drug active released over 24
hours may be substantially less than expected. However, if the
prescribed number of pills is swallowed, the drug release should be
as expected. Certain aspects of our PODRAS technology are covered
by U.S. Patent Nos. 9,522,119, 9,700,515, 9,700,516 and 9,801,939
and Canadian Patent No. 2,910,865 issued by the U.S. Patent and
Trademark Office and the Canadian Intellectual Property Office in
respect of “Compositions and Methods for Reducing
Overdose” in December 2016, July 2017 and October 2017,
respectively. The issuance of these patents provides us with the
opportunity to accelerate our PODRAS™ development
plan by pursuing proof of concept studies in humans. We intend to
incorporate this technology in future product candidates, including
Oxycodone ER and other similar pain products, as well as pursuing
out-licensing opportunities.
The NDA
505(b)(2) pathway (which relies in part upon the FDA’s
findings for a previously approved drug) both accelerates
development timelines and reduces costs in comparison to NDAs for
new chemical entities.
An
advantage of our strategy for development of NDA 505(b)(2) drugs is
that our product candidates can, if approved for sale by the FDA,
potentially enjoy an exclusivity period which may provide for
greater commercial opportunity relative to the generic ANDA
route.
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 commercialize on our own or develop products or
out-license our technologies and products:
●
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. These can potentially protect against
revenue erosion in the brand by providing a clinically attractive
patented product that competes favorably with the generic
immediate-release competition that arises on expiry of the original
patent(s). 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.
●
Some of our
technologies are also focused on the development of abuse-deterrent
and overdose preventive 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.
31
●
For existing
controlled-release (once-a-day) products whose active
pharmaceutical ingredients (“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 U.S. by their former
employer/clients. The regulatory pathway for this approach requires
ANDAs for the U.S. and ANDSs for Canada.
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 commercially viable or
beneficial.
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 non-competitive 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.
Manufacturing
We have
internal manufacturing capabilities consisting of current Good
Laboratory Practices (“cGLP”) research laboratories
and a current Good Manufacturing Process (“cGMP”)
manufacturing plant for solid oral dosage forms at our facility
located at 30 Worcester Road in Toronto, Ontario, Canada, M9W 5X2
(the “Toronto Facility”). 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. In October 2014, the FDA
provided us with written notification that the Toronto Facility had
received an “acceptable” classification. Such inspections
are carried out on a regular basis by the FDA and an “acceptable” classification is necessary to
permit us
to be in a position to receive final approvals for ANDAs and NDAs
and to permit manufacturing of drug products intended for
commercial sales in the United States after any such approvals.
Similarly, Health Canada completed an inspection of our Toronto
Facility in September 2015 which resulted in a “compliant” rating. Once we have completed
certain renovations to our newly-leased property located at 22
Worcester Road in Toronto, Ontario, Canada, M9W 5X2, we would
request an inspection by regulatory agencies which will determine
compliance of the facility with cGMP.
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 basis 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.
32
Patents
which relate to and protect various aspects of our
HypermatrixTM
family of drug delivery technologies include the following United
States, Japanese, Chinese, Indian, Canadian and European patents
which have been issued to us:
|
Country
|
Issue Date
|
Issue No.
|
Title
|
|
U.S.A.
|
October 31,
2017
|
9,801,939
|
Compositions and
Methods For Reducing Overdose
|
|
U.S.A.
|
July 11,
2017
|
9,700,516
|
Compositions and
Methods For Reducing Overdose
|
|
U.S.A.
|
July 11,
2017
|
9,700,515
|
Compositions and
Methods For Reducing Overdose
|
|
U.S.A.
|
Dec 20,
2016
|
9,522,119
|
Compositions and
Methods For Reducing Overdose
|
|
U.S.A.
|
July 14,
2015
|
9,078,827
|
Pharmaceutical
Composition Having Reduced Abuse Potential
|
|
U.S.A.
|
Aug 12,
2014
|
8,802,139
|
Proton
Pump-Inhibitor-Containing Capsules Which Comprise Subunits
Differently Structured For A Delayed Release Of The Active
Ingredient
|
|
U.S.A.
|
Dec 10,
2013
|
8,603,520
|
Oral
Multi-functional Pharmaceutical Capsule Preparations of Proton Pump
Inhibitors
|
|
U.S.A.
|
Mar 12,
2013
|
8,394,409
|
Controlled Extended
Drug Release Technology
|
|
U.S.A.
|
Mar 15,
2011
|
7,906,143
|
Controlled Release
Pharmaceutical Delivery Device and Process for Preparation
Thereof
|
|
U.S.A.
|
Dec 28,
2010
|
7,858,119
|
Extended Release
Pharmaceuticals
|
|
U.S.A.
|
Aug 15,
2006
|
7,090,867
|
Controlled Release
Delivery Device for Pharmaceutical Agents Incorporating Microbial
Polysaccharide Gum
|
|
U.S.A.
|
Oct 5,
2004
|
6,800,668
|
Syntactic
Deformable Foam Compositions and Methods for Making
|
|
U.S.A.
|
Nov 25,
2003
|
6,652,882
|
Controlled Release
Formulation Containing Bupropion
|
|
U.S.A.
|
Aug 19,
2003
|
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 28,
2015
|
5,798,293
|
Pharmaceutical
Composition Having Reduced Abuse Potential
|
|
Japan
|
Jan 17,
2014
|
5,457,830
|
Controlled Release
Delivery Device Comprising An Organosol Coat
|
|
Japan
|
Aug 8,
2014
|
5,592,547
|
Drug Delivery
Composition
|
|
Japan
|
Aug 30,
2013
|
5,349,290
|
Drug Delivery
Composition
|
|
India
|
Feb 10,
2015
|
265,141
|
Pharmaceutical
Composition Having Reduced Abuse Potential
|
|
Europe
|
Nov 26,
2014
|
2,007,360
|
Controlled Release
Delivery Device Comprising an Organosol Coat
|
|
Canada
|
May 26,
2015
|
2,579,382
|
Controlled Release
Delivery Device
|
|
Canada
|
Jan 28,
2014
|
2,571,897
|
Controlled Extended
Drug Release Technology
|
|
Canada
|
Apr 8,
2014
|
2,576,556
|
Drug Delivery
Device
|
|
Canada
|
Mar 11,
2014
|
2,648,280
|
Controlled Release
Delivery Device Comprising an Organosol Coat
|
|
Canada
|
Jun 19,
2012
|
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
|
33
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.
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, but follow a
505(b)(2) regulatory pathway, are subject to NDA
procedures.
These
procedures for a new drug compound include (a) preclinical
laboratory and animal toxicology tests; (b) scaling and testing of
production batches; (c) submission of an 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.
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.
A new
formulation for an existing drug compound requires a 505(b)(2)
application. This application contains full reports of
investigations of safety and effectiveness but at least some
information required for approval comes from studies not conducted
by or for the applicant and for which the applicant has not
obtained a right of reference. A 505(b)(2) application is submitted
when some specific information necessary for approval is obtained
from: (1) published literature and/or (2) the FDA findings of
safety and effectiveness for an approved drug. The FDA has
implemented this approach to encourage innovation in drug
development without requiring duplicative studies while protecting
the patent and exclusivity rights for the approved drug. A
505(b)(2) application can be submitted for a new chemical entity, a
new molecular entity or any changes to previously approved drugs
such as dosage form, strength, route of administration,
formulation, indication, or bioinequivalence where the application
may rely on the FDA’s
finding on safety and effectiveness of the previously approved
drug. In addition, the applicant may also submit a 505(b)(2)
application for a change in drug product that is eligible for
consideration pursuant to a suitability petition. For example, a
505(b)(2) application would be appropriate for a controlled-release
product that is bioinequivalent to a reference listed drug where
the proposed product
is at least as bioavailable and the pattern of release is at least
as favorable as the approved pharmaceutically equivalent product. A
505(b)(2) application may be granted three years of exclusivity if
one or more clinical investigations, other than
bioavailability/bioequivalence studies, was essential to the
approval and conducted or sponsored by the applicant; five years of
exclusivity granted if it is for a new chemical entity. A 505(b)(2)
application may also be eligible for orphan drug and pediatric
exclusivity.
34
A
505(b)(2) application must contain the following: (1)
identification of those portions of the application that rely on
the information the applicant does not have a right of reference,
(2) identification of any or all listed drugs by established name,
proprietary name, dosage form, strength, route of administration,
name of the listed drug’s
sponsor, and the application number if application relies on the
FDA’s previous findings
of safety and effectiveness for a listed drug, (3) information with
respect to any patents that claim the drug or the use of the drug
for which approval is sought, (4) patent certifications or
statement with respect to any relevant patents that claim the
listed drug, (5) if approval for a new indication, and not for the
indications approved for the listed drug, a certification so
stating, (6) a statement as to whether the listed drug has received
a period of marketing exclusivity, (7)
bioavailability/bioequivalence studies comparing the proposed
product to the listed drug (if any) and (8) studies necessary to
support the change or modification from the listed drugs or drugs
(if any). Before submitting the application, the applicant should
submit a plan to identify the types of bridging studies that should
be conducted and also the components of application that rely on
the FDA’s findings of
safety and effectiveness of a previously approved drug product. We
intend to generate all data necessary to support FDA approval of
the applications we file. A 505(b)(2) application must provide
notice of certain patent certifications to the NDA holder and
patent owner, and approval may be delayed due to patent or
exclusivity protections covering an approved product.
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.
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.
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 more timely inspections of drug facilities.
For the FDA’s fiscal
years 2016 and 2017, respectively, the user fee rates are $76,030
and $70,480 for new ANDAs, $38,020 and $35,240 for Prior Approval
Supplements, and $17,434 for each ANDA already on file at the FDA.
For the FDA’s fiscal
years 2016 and 2017, there is also an annual facility user fee of
$258,905 and $273,646, respectively. Effective October 1, 2017, for
the FDA’s fiscal year
2018, the FDA will charge an annual facility user fee of $226,087
plus a new general program fee of $159,079. 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.
35
Patent Certification and Exclusivity Issues
ANDAs
and/or NDAs, filed under Paragraph IV of the Hatch Waxman Act,
which seek approval by a non-brand owner to market a generic
version of a branded drug product prior to the expiry of patents
owned or listed in the Orange Book (the “Listed Patents”) as applicable
to the brand owner’s
product, are required to include certifications pursuant to
Paragraph IV that either the Listed Patents are invalid or that the
applicant’s drug product
does not infringe the Listed Patents. In such circumstances, the
owner of the branded drug and/or the holder of the patents may
commence patent infringement litigation against the applicant. In
such a case, the FDA is not empowered to approve such pending ANDA
or NDA until the expiry of 30 months from the commencement of such
litigation, unless within such 30 month period the said patents are
found to be invalid, or the drug product covered by the ANDA or NDA
is finally found by a court not to infringe such
patents.
Under
the U.S. Food, Drug and Cosmetic Act (“FDC Act”), the first filer of
an ANDA (but not an NDA) with a “non-infringement” certification is entitled, if its
drug product is approved, to receive 180 days of market
exclusivity. Subsequent filers of generic products, if
non-infringing and approved by the FDA, are entitled to market
their products six months after the first commercial marketing of
the first filer’s generic
product. A company having FDA approval and permission from the
original brand owner is able to market an authorized generic at any
time. 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 applicant amends or
withdraws Paragraph IV Certification for all patents qualifying for
180 day exclusivity, or 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.
The FDC
Act contains other market exclusivity provisions that offer
additional protection to pioneer drug products which 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 for a generic of 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 current or
future 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.
36
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 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.
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.
37
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.
Property, Plant and Equipment
On
December 1, 2015, we entered into a lease agreement for a 25,000
square foot facility located at 30 Worcester Road Toronto, Ontario,
Canada M9W 5X2 (“30 Worcester
Road”), as well as a 40,000 square foot facility on
the adjoining property located at 22 Worcester Road, Toronto,
Ontario, Canada M9W 5X2, both of which are owned indirectly by the
same landlord (“22 Worcester
Road”, and together with 30 Worcester Road, the
“Combined
Properties”) for a five-year term with a five-year
renewal option. Basic rent over the five-year term is C$240,000 per
annum for the Combined Properties, subject to an annual consumer
price inflation adjustment, and we are responsible for utilities,
municipal taxes and operating expenses for the leased property.
With these two leased premises, we now have use of 65,000 square
feet of commercial space to accommodate our growth objectives over
the next several years. We also have an option to purchase the
Combined Properties after March 1, 2017 until November 30, 2020
based on a fair value purchase formula. We use our facility at 30
Worcester Road as a current Good Laboratory Practices research
laboratory, office space, and cGMP scale-up and small to
medium-scale manufacturing plant for solid oral dosage forms. The
facility at 30 Worcester Road consists of approximately 4,900
square feet for administrative space, 4,300 square feet for
R&D, 9,200 square feet for manufacturing, and 3,000 square feet
for warehousing. The 22 Worcester Road building provides
approximately 35,000 square feet of warehouse space and
approximately 5,000 square feet of office space. The current lease
also provides us with a right of first refusal to purchase the
Combined Properties. The landlord is required to provide us with at
least 60 days prior written notice and the desired sale price for
the Combined Properties prior to offering the premises to a third
party or on the open market. We have five business days to accept
such offer and purchase price for a transaction to close within 60
days of the notice. If we decline the offer, the landlord is
entitled to offer and sell the properties for a purchase price of
not less than the price offered to us for a period of 180 days,
after which time the landlord is again obliged to offer the
properties to us before offering them to a third party or on the
open market.
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 selected financial data of the Company has been derived
from the audited consolidated financial statements of the Company
as at and for the years ended November 30, 2017, 2016, 2015, 2014,
and 2013. As a result of the IPC Arrangement Agreement 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 U.S. GAAP. All
dollar amounts in this prospectus are expressed in U.S. dollars, unless otherwise
indicated.
38
(in thousands of U.S. dollars, except for per share data)
|
|
(Unaudited)
As at and for the six months ended May 31, 2018
|
As at and for the year ended November 30, 2017
|
As at and for the year ended November 30, 2016
|
As at and for the year ended November 30, 2015
|
As at and for the year ended November 30, 2014
|
As at and for the year ended November 30, 2013
|
|
Revenue
|
911
|
5,504
|
2,247
|
4,094
|
8,770
|
1,527
|
|
Net
loss for the year
|
(6,009)
|
(8,857)
|
(10,144)
|
(7,436)
|
(3,856)
|
(11,495)
|
|
Total
assets
|
6,668
|
7,397
|
7,974
|
5,224
|
7,875
|
4,380
|
|
Total
liabilities
|
7,699
|
7,010
|
6,858
|
5,362
|
2,966
|
10,335
|
|
Net
assets
|
(1,031)
|
387
|
1,116
|
(138)
|
4,909
|
(5,955)
|
|
Capital
stock
|
38,698
|
35,290
|
29,831
|
21,481
|
18,941
|
11,721
|
|
Loss
per share - basic and diluted
|
(1.57)
|
(2.86)
|
(3.80)
|
(3.13)
|
(1.67)
|
(5.84)
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Weighted
average common shares
|
3,831
|
3,101
|
2,670
|
2,377
|
2,305
|
1,967
|
The
following discussion and analysis should be read in conjunction
with the historical consolidated financial statements of the
Company the other financial information appearing elsewhere in, or
incorporated by reference into, this prospectus. This discussion
contains forward-looking statements that involve risks and
uncertainties. Please see “Cautionary Note Regarding
Forward-Looking Information” for a discussion of the risks,
uncertainties and other factors associated with these statements.
The results of operations for the periods reflected herein are not
necessarily indicative of results that may be expected for future
periods, and our actual results may differ materially from those
discussed in our forward-looking statements as a result of various
factors, including, but not limited to, those listed under
“Risk Factors” on page 6 of this prospectus and those
included elsewhere in, or incorporated by reference into, this
prospectus. 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,
2017, 2016 and 2015.
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 number of competitive
products and the extent of any aggressive pricing activity,
wholesaler buying patterns, the timing and amount of payments
received pursuant to our current and future collaborations with
third parties, the existence of any first-to-file exclusivity
periods, 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.
Six Months Ended May 31, 2018 Compared to the Six Month Ended May
31, 2017
Revenue
The
Company recorded revenues of $911,485 for the six months ended May
31, 2018 versus $3,236,878 for the six months ended May 31, 2017.
Such revenues consisted primarily of licensing revenues from
commercial sales of the 15, 25, 30 and 35 mg strengths of our
generic Focalin XR® under the Par
Agreement. The decrease in revenues in the six months ended May 31,
2018 compared to the six months ended May 31, 2017 is primarily due
to considerably lower profit share payments from sales of generic
Focalin XR® capsules in the
U.S. Beginning in early 2018, we began to see significant impact
from aggressive pricing by competitors, resulting in a marked
increase in gross-to-net deductions such as wholesaler rebates,
chargebacks and pricing adjustments. These deductions often have
the most impact in the first month they are applied and we have
begun to see some improvement in product profitability from the
first quarter of 2018 to the second quarter. Despite some
improvement, overall profitability remains substantially lower than
in 2017.
39
Revenues from
generic Seroquel XR® are still well
below levels expected at the launch of the product in 2017,
primarily due to the Company’s commercial partner entering
the market later than planned. Several initiatives to gain market
share have shown some improved returns, however, it is expected to
take some time to determine if the product can achieve meaningful
market penetration. Management is continuing to evaluate strategic
options to improve returns from this product.
Cost of goods sold
The
Company recorded cost of goods sold of $65,874 for the six months
ended May 31, 2018 versus $211,372 for the six months ended May 31,
2017. Cost of sales for the six months ended May 31, 2018, reflects
the Company’s manufacturing shipment of generic Seroquel
XR®
to Mallinckrodt.
Research and Development
Expenditures for
R&D for the six months ended May 31, 2018 were lower by
$249,371 compared to the six months ended May 31, 2017. The
decrease is primarily due to lower stock option compensation
expense in the six months ended May 31, 2018 compared to the six
months ended May 31, 2017. We recorded higher stock option
compensation expense, as a result of certain performance-based
stock options vesting upon FDA approvals, as described
below.
In the
six months ended May 31, 2018, we recorded $67,995 of expenses for
stock-based compensation for R&D employees compared to
$1,602,025 for the six months ended May 31, 2017, of which
$1,577,772 was for expenses related to performance-based stock
options which vested on FDA approval for metformin hydrochloride
extended release tablets in February 2017 and FDA approval of our
quetiapine fumarate extended release tablets in May
2017.
After
adjusting for the stock-based compensation expenses discussed
above, expenditures for R&D for the six months ended May 31,
2018 were higher by $1,284,659 compared to the six months ended May
31, 2017. The increase was primarily due to an increase in third
party R&D expenditures as a result of ongoing clinical trials
for Oxycodone ER.
Selling, General and Administrative
Selling, general
and administrative expenses were $1,981,319 for the six months
ended May 31, 2018 in comparison to $1,718,225 for the six months
ended May 31, 2017, an increase of $263,094. The increase is due to
higher expenses related to wages and benefits and administrative
costs discussed in greater detail below.
Administrative
costs for the six months ended May 31, 2018 were $1,042,642 in
comparison to $838,983 in the six months ended May 31, 2017. The
increase in the six months ended May 31, 2018 was due to the
increase in professional fees and legal fees.
Expenditures for
wages and benefits for the six months ended May 31, 2018 were
$629,867 in comparison to $582,702 in the six months ended May 31,
2017. For the six months ended May 31, 2018, we recorded $26,811 as
expense for stock-based compensation compared to an expense of
$42,843 for the six months ended May 31, 2017. After adjusting for
the stock-based compensation expenses, expenditures for wages for
the six months ended May 31, 2018 were higher by $63,197 compared
to the six months ended May 31, 2017. The increase is attributable
to higher compensation expense due to staff additions.
Marketing costs for
the six months ended May 31, 2018 were $238,633 in comparison to
$229,055 in the six months ended May 31, 2017. This increase is
primarily the result of an increase in travel expenditures related
to business development and investor relations
activities.
Occupancy costs for
the six months ended May 31, 2018 were $70,177 in comparison to
$67,485 for the six months ended May 31, 2017. The slight increase
is due to the incremental cost of leasing an adjoining facility in
order to meet the Company’s anticipated growth
requirements.
Depreciation
Depreciation
expenses for the six months ended May 31, 2018 were $302,026 in
comparison to $198,362 in the six months ended May 31, 2017. The
increase is primarily due to the additional investment in
production, laboratory and computer equipment during the six months
ended May 31, 2018.
40
Foreign Exchange Gain
Foreign
exchange gain was $7,700 for the six months ended May 31, 2018 in
comparison to a gain of $17,306 in the six months ended May 31,
2017. The foreign exchange gain for the six months ended May 31,
2018 was due to the strengthening of the U.S. dollar against the
Canadian dollar during the six months ended May 31, 2018 as the
exchange rates changed to $1.00 for C$1.2948 as at May 31, 2018
from $1.00 for C$1.2888 as at November 30, 2017. The foreign
exchange gain for the six months ended May 31, 2017 was due to the
strengthening of the U.S. dollar against the Canadian dollar during
the six months ended May 31, 2017 as the exchange rates changed to
$1.00 for C$1.3500 as at May 31, 2017 from $1.00 for C$1.3429 as at
November 30, 2016.
Interest Income
Interest income for
the six months ended May 31, 2018 was lower by $15,011 in
comparison to the prior period. For the six months ended May 31,
2018 interest was lower largely due to interest received on input
tax credit refunds under the Scientific Research & Experimental
Development incentive program in the second quarter of
2017.
Interest Expense
Interest expense
for the six months ended May 31, 2018 was higher by $109,225
compared with the prior period. This is due to interest expense
paid on the 2013 Debenture which accrues interest payable at 12%
annually and the related conversion option embedded derivative
accreted at an annual imputed interest of approximately 4.9% in the
first six months of 2018 in comparison to the first six months of
2017 when the 2013 Debenture imputed interest was approximately
15.2%.
Net Loss
The
Company recorded net loss for the six months ended May 31, 2018 of
$6,008,864 or $1.57 per Common Share, compared with a net loss of
$3,796,190 or $1.26 per Common Share for the six months ended May
31, 2017. In the six months ended May 31, 2018, the higher net loss
is attributed to the lower licensing revenues from commercial sales
of generic Focalin XR® combined with
increased legal and other administrative expenses. In the six
months ended May 31, 2017, the net loss was attributed to the
ongoing R&D and selling, general and administrative expenses.
The lower net loss in 2017 is primarily attributed to higher
licensing revenues from commercial sales of Focalin XR®, partially
offset by an increase in performance based stock option
expense.
Year Ended November 30, 2017 Compared to the Year Ended November
30, 2016
Revenue
The
Company recorded revenues of $5,504,452 for the year ended November
30, 2017 versus $2,247,002 for the year ended November 30, 2016.
Revenues consisted primarily of licensing revenues from commercial
sales of the 10, 15, 20, 25, 30 and 35 mg of generic Focalin
XR®
under the Par Agreement. The increase in revenues in the current
year period is primarily due to the launch in January 2017 of the
25 and 35 mg strengths of generic Focalin XR® capsules in the
U.S. and also reflects revenue from the Company’s generic
Seroquel XR® launched by
Mallinckrodt in June 2017. The Company’s revenues on the 25
and 35 mg strengths of generic Focalin XR® showed some
decline commencing July 2017 when their six month exclusivity
expired, but have since leveled off. The 15 and 30mg strengths
continue to perform well, with the 10 and 20 mg strengths
contributing less due to their launch date being late August 2017.
The 5 and 40 mg strengths did not contribute at all to top line
revenue in fiscal 2017 as the products were not in the market until
after year end. Revenues from generic Seroquel XR® were
considerably lower than originally anticipated, primarily due to
timing of the product launch, which was several weeks after other
generics entered the market. As such, it is expected to take some
time to gain market share as wholesaler contracts come up for
renewal. Revenues under the Par and Mallinckrodt agreements
represents the commercial sales of the generic products in those
strengths and may not be representative of future
sales.
Cost of goods sold
The
Company recorded cost of goods sold of $704,006 for the year ended
November 30, 2017 versus $0 for the year ended November 30, 2016.
Cost of sales for the year ended November 30, 2017, reflects the
Company’s shipments of generic Seroquel XR® to Mallinckrodt
which are manufactured by the Company and supplied to Mallinckrodt
on a cost-plus basis. This product was not marketed or sold prior
to fiscal 2017.
41
Research and Development
Expenditures for
R&D for the year ended November 30, 2017 were higher by
$1,104,617 compared to the year ended November 30, 2016. The
increase is primarily due to higher stock option compensation
expense as a result of certain performance based stock options
vesting upon FDA approval of quetiapine fumarate extended release
tablets in the 50, 150, 200, 300 and 400 mg strengths, as detailed
below. R&D expenses are also higher due to higher third party
consulting fees associated with our preparation for the FDA
Advisory Committee meeting in relation to our Oxycodone ER NDA
filing.
In the
year ended November 30, 2017, we recorded $1,654,051 of expenses
for stock-based compensation for R&D employees, of which
$1,577,772 was for expenses related to performance based stock
options which vested on FDA approval for metformin hydrochloride
extended release tablets in February 2017 and FDA approval of our
quetiapine fumarate extended release tablets in May 2017. In the
year ended November 30, 2016, we recorded $1,995,805 as expense for
stock based compensation for R&D employees, of which $620,632
was for expenses related to performance based stock options which
vested on FDA approval of our generic Keppra XR® in February
2016.
After
adjusting for the stock-based compensation expenses discussed
above, expenditures for R&D for the year ended November 30,
2017 were higher by $1,446,371 compared to the year ended November
30, 2016. The increase was primarily due to costs related to
preparing for the FDA Advisory Committee meeting, an increase in
third party R&D expenditures and higher compensation
expense.
Selling, General and Administrative
Selling, general
and administrative expenses were $3,287,914 for the year ended
November 30, 2017 in comparison to $3,546,132 for the year ended
November 30, 2016, a decrease of $258,218. The decrease is due to
lower wages and benefits and administrative costs offset by higher
expenses related to marketing cost and occupancy cost discussed in
greater detail below.
Expenditures for
wages and benefits for the year ended November 30, 2017 were
$1,240,361 in comparison to $1,454,501 in the year ended November
30, 2016. For the year ended November 30, 2017, we recorded $95,948
as expense for stock-based compensation compared to an expense of
$265,639 for the year ended November 30, 2016. After adjusting for
the stock-based compensation expenses, expenditures for wages for
the year ended November 30, 2017 were lower by $44,449 compared to
the year ended November 30, 2016. The decrease is attributable to
the accrual of bonuses to certain management employees in the year
ended November 30, 2016, there were no bonuses paid in the year
ended November 30, 2017.
Administrative
costs for the year ended November 30, 2017 were $1,402,253 in
comparison to $1,558,633 in the year ended November 30, 2016. The
decrease relates primarily to lower professional fees.
Marketing costs for
the year ended November 30, 2017 were $502,688 in comparison to
$413,646 in the year ended November 30, 2016. The increase is
primarily the result of an increase in travel expenditures related
to business development and investor relations
activities.
Occupancy costs for
the year ended November 30, 2017 were $142,612 in comparison to
$119,352 for the year ended November 30, 2016. The increase is due
to the incremental cost of leasing an adjoining facility in order
to meet the Company’s anticipated growth
requirements.
Depreciation
Depreciation
expenses for the year ended November 30, 2017 were $506,961 in
comparison to $385,210 in the year ended November 30, 2016. The
increase is primarily due to the additional investment in
production, laboratory and computer equipment during the year ended
November 30, 2017.
Foreign Exchange Loss
Foreign
exchange loss was $80,093 for the year ended November 30, 2017 in
comparison to a loss of $22,470 in the year ended November 30,
2016. The foreign exchange loss for the year ended November 30,
2017 was due to the weakening of the Canadian dollar against the
U.S. dollar during the year ended November 30, 2017 as the exchange
rates changed to $1.00 for C$1.2888 as at November 30, 2017 from
$1.00 for C$1.3429 as at November 30, 2016. The foreign exchange
loss for the year ended November 30, 2016 was due to the weakening
of the Canadian dollar against the U.S. dollar during the year
ended November 30, 2016 as the exchange rates changed to $1.00 for
C$1.3429 as at November 30, 2016 from $1.00 for C$1.3353 as at
November 30, 2015.
42
Interest Income
Interest income for
the year ended November 30, 2017 was higher by $14,830 in
comparison to the prior period. For the year ended November 30,
2017 interest was higher largely due to interest received on input
tax credit refunds under the Scientific Research & Experimental
Development program.
Interest Expense
Interest expense
for the year ended November 30, 2017 was higher by $119,001
compared with the prior period. This is due to interest expense
paid in 2017 on the 2013 Debenture which accrues interest payable
at 12% annually and the related conversion option embedded
derivative accreted at an annual imputed interest of approximately
15.2%, in comparison to the first nine months of 2016 when the 2013
Debenture imputed interest was approximately 4.2%.
Net Loss
The
Company recorded net loss for the year ended November 30, 2017 of
$8,857,440 or $2.86 per Common Share, compared with a net loss of
$10,143,577 or $3.80 per Common Share for the year ended November
30, 2016. In the year ended November 30, 2017, the net loss was
attributed to the ongoing R&D and selling, general and
administrative expenses, partially offset by licensing revenues
from commercial sales of generic Focalin XR® and to a lesser
extent, sales of generic Seroquel XR® shipped to
Mallinckrodt. The net loss in 2017 is lower compared to 2016 due to
higher licensing revenues which were partially offset by an
increase in performance based stock option expense and higher third
party R&D expenditures. Revenue from commercial sales of
generic Focalin XR® and generic
Seroquel XR® in the year
ended November 30, 2017, was $4,269,691 versus $2,209,502 in fiscal
2016. This is primarily due to the launch of additional strengths
of generic Focalin XR® in 2017 as well
as the launch of generic Seroquel XR®. In the year
ended November 30, 2016, the higher net loss was primarily
attributed to lower licensing revenues from commercial sales of
generic Focalin XR® for 2016. To a
lesser extent, the higher loss for the 2016 period was due to the
accrual of management bonuses and additional compensation costs
related to vested performance options as a result of the FDA
approval of generic Keppra XR® and the
Company’s shareholders approving an extension of the expiry
date of the performance based stock options.
Year Ended November 30, 2016 Compared to the Year Ended November
30, 2015
Revenue
The
Company recorded revenues of $2,247,002 for the year ended November
30, 2016 versus $4,093,781 for the year ended November 30, 2015.
For the year ended November 30, 2016, we recognized licensing
revenue of $2,209,502 from commercial sales of 15 and 30 mg
strengths of generic Focalin XR® capsules under
the Par Agreement. The decrease in revenues is primarily due to
increased competition and a softening of pricing conditions for our
generic Focalin XR® capsules. A
fifth generic competitor entered the market in the second half of
2015, resulting in increased price competition and lower market
share. Based on the most recent two month trend, our market share
for the 15 and 30 mg strengths was approximately 30% for the
combined strengths of our generic Focalin XR® capsules. In
addition, during the year ended November 30, 2016, the Company
received a non-refundable up-front payment of $3,000,000 from
Mallinckrodt pursuant to the Mallinckrodt agreement, of which
$37,500 was recognized as revenue. Such up-front fees are
recognized over the expected ten year term of the contract. There
were no up-front fees recognized in the year ended November 30,
2015.
Research and Development
Expenditures for
R&D for the year ended November 30, 2016 were higher by
$919,263 compared to the year ended November 30, 2015. The increase
is primarily due to higher stock option compensation expense as a
result of certain performance based stock options vesting upon FDA
approval of generic Keppra XR®, and additional compensation
costs related to vested performance options as a result of the
Company’s shareholders approving a two year extension of the
expiry date of the performance based stock options from September
2016 to September 2018, partially offset by lower spending for
ongoing R&D work, as detailed below.
In the
year ended November 30, 2016 we recorded $1,995,805 as expense for
stock based compensation for R&D employees, of which $620,632
was for expenses related to performance based stock options which
vested on FDA approval of our generic Keppra XR® in February
2016. As a result of the modification of the performance based
stock option expiry date, we recorded additional compensation costs
of $1,177,782 related to vested performance options during the year
ended November 30, 2016. In the year ended November 30, 2015, we
recorded $152,231 as expenses for stock-based compensation
expense.
43
After
adjusting for the stock-based compensation expenses discussed
above, expenditures for R&D for the year ended November 30,
2016 were lower by $924,311 compared to the year ended November 30,
2015. This is primarily due to the fact that during the year ended
November 30, 2016 we incurred lower expenditures on the development
of several generic product candidates (specifically for clinical
studies), partially offset by an accrual of bonuses to certain
management employees, compared to the year ended November 30, 2015.
There were no management bonuses paid in the year ended November
30, 2015.
Selling, General and Administrative
Selling, general
and administrative expenses were $3,546,132 for the year ended
November 30, 2016 in comparison to $3,581,913 for the year ended
November 30, 2015, a decrease of $35,781. The decrease was due to a
decrease in corporate legal activities and other professional fees,
offset by an expense for management bonuses discussed in greater
detail below.
Expenditures for
wages and benefits for the year ended November 30, 2016 were
$1,454,501 in comparison to $1,305,614 in the year ended November
30, 2015, an increase of $148,887, primarily due to the accrual of
bonuses to certain management employees. There were no bonuses paid
in the year ended November 30, 2015. For the year ended November
30, 2016, we recorded $265,639 as an expense for stock-based
compensation compared to an expense of $265,587 for the year ended
November 30, 2015.
Administrative
costs for the year ended November 30, 2016 were $1,558,633 in
comparison to $1,751,315 in the year ended November 30, 2015. The
decrease was primarily due to a decrease in expenditures in
corporate legal activities and other professional
fees.
Marketing costs for
the year ended November 30, 2016 were $413,646 in comparison to
$434,902 in the year ended November 30, 2015. The decrease was
attributable to the decrease in travel expenditures related to
business development and investor relations
activities.
Occupancy costs for
the year ended November 30, 2016 were $119,352 in comparison to
$90,082 for the year ended November 30, 2015. The increase was due
to the incremental cost of leasing an adjoining facility in order
to meet the Company’s anticipated growth
requirements.
Depreciation
Depreciation
expenses for the year ended November 30, 2016 were $385,210 in
comparison to $377,849 in the year ended November 30, 2015. The
increase was primarily due to the additional investment in
production, laboratory and computer equipment during the year ended
November 30, 2016.
Net Foreign Exchange (Loss) Gain
Foreign
exchange loss was $22,470 for the year ended November 30, 2016 in
comparison to a gain of $46,211 in the year ended November 30,
2015. The foreign exchange loss for the year ended November 30,
2016 was due to the weakening of the Canadian dollar against the
U.S. dollar during the year ended November 30, 2016 as the exchange
rates changed to $1.00 for C$1.3429 as at November 30, 2016 from
$1.00 for C$1.3353 as at November 30, 2015. During the year ended
November 30, 2016, the exchange rate averaged $1.00 for C$1.3276
compared to the year ended November 30, 2015, when the exchange
rate averaged $1.00 for C$1.2603.
Interest Income
Interest income for
the year ended November 30, 2016 was lower by $1,300 in comparison
to the prior period. For the year ended November 30, 2016 interest
was lower largely due to lower average amounts of cash on hand
compared to the year ended November 30, 2015.
Interest Expense
Interest expense
for the year ended November 30, 2016 was higher by $13,609 compared
with the prior period. This is primarily because the interest
expense paid on the 2013 Debenture which accrues interest payable
at 12% annually and the related conversion option embedded
derivative accreted at an annual imputed interest of approximately
6.6% in fiscal 2016. During the fiscal year 2015, the conversion
option embedded derivative accreted at an annual imputed interest
of approximately 15%, offset by a credit to interest expense at an
imputed interest rate of 14.6%, during the third quarter of 2015,
due to the extinguishment of the debt from an accounting
perspective.
44
Net Loss
The
Company recorded net loss for the year ended November 30, 2016 of
$10,143,577 or $3.80 per Common Share, compared with a net loss of
$7,436,388 or $3.13 per Common Share for the year ended November
30, 2015. In the year ended November 30, 2016, the higher net loss
was primarily attributed to lower licensing revenues from
commercial sales of generic Focalin XR® for 2016. To a
lesser extent, the higher loss for the 2016 period was due to the
accrual of management bonuses and additional compensation costs
related to vested performance options as a result of the FDA
approval of generic Keppra XR® and the
Company’s shareholders approving an extension of the expiry
date of the performance based stock options. In the year ended
November 30, 2015, the net loss was attributed to the ongoing
R&D and selling, general and administrative expense, partially
offset by licensing revenue.
Liquidity and Capital Resources
|
|
For the three months
ended
|
|
For the six
months ended
|
|
||||
|
|
May 31, 2018
|
May 31, 2017
|
Change
|
May 31, 2018
|
May 31, 2017
|
Change
|
||
|
|
(UNAUDITED)
|
(UNAUDITED)
|
|
|
(UNAUDITED)
|
(UNAUDITED)
|
|
|
|
|
$
|
$
|
$
|
%
|
$
|
$
|
$
|
%
|
|
Cash
flows used in operating activities
|
(3,545,356)
|
(952,428)
|
(2,592,928)
|
272%
|
(5,133,366)
|
(2,672,727)
|
(2,460,639)
|
92%
|
|
Cash
flows provided by financing activities
|
4,681,311
|
840,595
|
3,840,716
|
457%
|
4,681,311
|
1,523,536
|
3,157,775
|
207%
|
|
Cash
flows used in investing activities
|
(45,507)
|
(797,173)
|
751,666
|
-94%
|
(84,332)
|
(1,519,615)
|
1,435,283
|
-94%
|
|
Increase
(decrease) in cash
|
1,090,448
|
(909,006)
|
1,999,454
|
-220%
|
(536,387)
|
(2,668,806)
|
2,132,419
|
-80%
|
|
Cash,
beginning of period
|
270,226
|
2,384,624
|
(2,114,398)
|
-89%
|
1,897,061
|
4,144,424
|
(2,247,363)
|
-54%
|
|
Cash,
end of period
|
1,360,674
|
1,475,618
|
(114,944)
|
-8%
|
1,360,674
|
1,475,618
|
(114,944)
|
-8%
|
The
Company had cash of $1,360,674 as at May 31, 2018 compared to
$270,226 as at February 28, 2018. The increase in cash during the
three months ended May 31, 2018 was mainly a result of cash flows
provided by financing activities, offset by lower cash receipts
relating to commercial sales of our generic Focalin XR®
capsules, and an increase in R&D expenses related to our
ongoing product development activities. The decrease in cash during
the three months ended May 31, 2017 was mainly a result of
expenditures for R&D and selling, general, and administrative
expenses, which included increased consulting fees incurred to
prepare for the July 26, 2017 Advisory Committees meeting and an
increase in purchases of plant and production equipment to support
our generic Seroquel XR® launch, which were only partially
offset by cash receipts from commercialized sales of our generic
Focalin XR® and cash proceeds provided from financing
activities derived from Common Share sales under the
Company’s at-the-market offering program.
For the
three and six months ended May 31, 2018, net cash flows used in
operating activities increased to $3,545,356 and $5,133,366,
respectively, as compared to net cash flows used in operating
activities for the three and six months ended May 31, 2017 of
$952,428 and $2,672,727. The increase was primarily a result of the
higher loss from operations, offset by an increase in accounts
payable and a decrease in accounts receivable, as well as increases
in prepaid expenses and inventory.
R&D
costs, which are a significant portion of the cash flows used in
operating activities, related to continued internal research and
development programs are expensed as incurred. Equipment and
supplies are capitalized and amortized over their useful lives if
they have alternative future uses.
For the
three and six months ended May 31, 2018, net cash flows provided
from financing activities were $4,681,311 and $4,681,311, compared
to $840,595 and $1,523,536, respectively, for the three and six
months ended May 31, 2017. Net cash flows from financing activities
in the three and six months ended May 31, 2018 were related to two
registered direct offerings of an aggregate of 883,333 Common
Shares at a price of $6.00 per share (post reverse-split) for gross
proceeds of $5,300,000. Net cash flows from financing activities in
the three and six months ended May 31, 2017 related to
at-the-market issuances of 37,180 and 59,316 Common Shares sold on
Nasdaq for gross proceeds of $871,449 and $1,448,472, with net
proceeds to the Company of $845,785 and $1,406,243, respectively,
and to the exercise of 3,104 and 30,601 warrants resulting in the
issuance of 1,552 and 15,300 Common Shares for net proceeds of
$29,958 and $295,308, respectively, partially offset by capital
lease payments.
All
non-cash items have been added back or deducted from the
consolidated statements of cash flows.
45
With
the exception of the quarter ended February 28, 2014, the Company
has incurred losses from operations since inception. To date, the
Company has funded its R&D activities principally through the
issuance of securities, loans from related parties, funds from the
IPC Arrangement Agreement and funds received under commercial
license agreements. Since November 2013, research has also been
funded from revenues from sales of our generic Focalin
XR®
capsules for the 15 and 30 mg strengths. With the launch of the 25
and 35 mg strengths by Par in January 2017, the launch of the 10
and 20 mg strengths in May 2017 along with the launch of the 5 and
40 mg strengths in November 2017, we expect sales of generic
Focalin XR® to show some
improvement longer term. However, due to continued competitive
pressures, we expect net profit payments from this product to be
negatively impacted for the next several quarters. As of November
30, 2017, the Company had a cash balance of $1.9 million. As of May
31, 2018, our cash balance was $1.4 million. While we expect to
satisfy certain short term capital needs from cash on hand and
profit transfer payments from our commercial partners, we need to
obtain additional funding as we further the development of our
product candidates. Potential sources of capital may include
payments from licensing agreements, cost savings associated with
managing operating expense levels, other equity and/or debt
financings, and/or new strategic partnership agreements which fund
some or all costs of product development. We intend to utilize the
equity markets to bridge any funding shortfall and to provide
capital to continue to advance our most promising product
candidates. Our future operations are highly dependent upon our
ability to source additional capital to support advancing our
product pipeline through continued R&D activities and to fund
any significant expansion of our operations. Our ultimate success
will depend on whether our product candidates receive the approval
of the FDA or Health Canada and whether we are able to successfully
market approved products. We cannot be certain that we will be able
to receive FDA or Health Canada approval for any of our current or
future product candidates, that we will reach the level of sales
and revenues necessary to achieve and sustain profitability, or
that we can secure other capital sources on terms or in amounts
sufficient to meet our needs or at all. Our cash requirements for
R&D during any period depend on the number and extent of the
R&D activities we focus on. At present, we are working
principally on our Oxycodone ER 505(b)(2), PODRASTM technology,
additional 505(b)(2) product candidates for development in various
indication areas and selected generic product candidate development
projects. Our development of Oxycodone ER will require significant
expenditures, including costs to defend against the Purdue
litigation. For our RegabatinTM
XR 505(b)(2) product candidate, Phase III clinical trials can be
capital intensive, and will only be undertaken consistent with the
availability of funds and a prudent cash management strategy. We
anticipate some investment in fixed assets and equipment over the
next several months, the extent of which will depend on cash
availability.
Effective September
28, 2017, the maturity date for the 2013 Debenture was extended to
October 1, 2018. The Company currently expects to repay the current
outstanding principal amount of $1,350,000 on or about October 1,
2018, if the Company then has cash available.
The
availability of equity or debt financing will be affected by, among
other things, the results of our R&D, our ability to obtain
regulatory approvals, our success in commercializing approved
products with our commercial partners and the market acceptance of
our products, the state of the capital markets generally, strategic
alliance agreements, and other relevant commercial considerations.
In addition, if we raise additional funds by issuing equity
securities, our then existing security holders will likely
experience dilution, and the incurring of indebtedness would result
in increased debt service obligations and could require us to agree
to operating and financial covenants that would restrict our
operations. In the event that we do not obtain sufficient
additional capital, it will raise substantial doubt about our
ability to continue as a going concern, realize our assets and pay
our liabilities as they become due. Our cash outflows are expected
to consist primarily of internal and external R&D, legal and
consulting expenditures to advance our product pipeline and
selling, general and administrative expenses to support our
commercialization efforts. Depending upon the results of our
R&D programs, the impact of the Purdue litigation and the
availability of financial resources, we could decide to accelerate,
terminate, or reduce certain projects, or commence new ones. Any
failure on our part to successfully commercialize approved products
or raise additional 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 us not taking advantage of business opportunities,
in the termination or delay of clinical trials or us not taking any
necessary actions required by the FDA or Health Canada 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, ANDSs or
NDAs at all or in time to competitively market our products or
product candidates.
Trend Information
It is
important to note that historical patterns of revenue and
expenditures cannot be taken as an indication of future revenue and
expenditures. Net loss has been somewhat variable over the last
eight quarters, and has been impacted primarily by the commercial
sales of generic Focalin XR® capsules, the
level of our R&D spending, availability of funding and the
vesting or modification of performance based stock options. The
lower net loss in the fourth quarter of 2017 is primarily
attributed to lower R&D spending and selling, general and
administrative expenses, partially offset by lower licensing
revenues. The higher net loss in the third quarter of 2017 is
primarily due to lower licensing revenue as a result of the
expiration of exclusivity on the 25 and 35 mg strengths of generic
Focalin XR® resulting in
higher than normal wholesaler returns, along with higher expenses
related to the FDA Advisory Committee meeting in July 2017. The
lower net loss in the second quarter of 2017 is primarily
attributed to higher licensing revenues from commercial sales of
generic Focalin XR® in the 25 and
35 mg strengths complementing the 15 and 30 mg strengths of our
generic Focalin XR® marketed by
Par, partially offset by an increase in performance based options
expense and higher third party consulting fees. The lower net loss
in the first quarter of 2017 is primarily attributed to higher
licensing revenues from commercial sales of generic Focalin
XR®
due to Par’s launch of the 25 and 35 mg strengths of its
generic Focalin XR® capsules in
that quarter, partially offset by an increase in performance based
stock options expense and legal and other professional fees. The
higher net loss in the fourth quarter of 2016 is attributable to
the accrual of management bonuses (there were no management bonuses
paid in fiscal 2015) and additional compensation costs related to
vested performance based stock options as a result of the
Company’s shareholders approving an extension of the expiry
date of the performance based stock options.
46
The
following selected financial information is derived from our
unaudited interim consolidated financial statements.
|
Quarter Ended
|
Revenue
|
Net loss
|
Loss per share
|
|
|
|
|
|
Basic(i)
|
Diluted(i)
|
|
|
$
|
$
|
$
|
$
|
|
May
31, 2018
|
576,967
|
(2,859,276)
|
(0.68)
|
(0.68)
|
|
February
28, 2018
|
334,518
|
(3,149,588)
|
(0.91)
|
(0.91)
|
|
November
30, 2017
|
1,077,835
|
(2,510,936)
|
(0.76)
|
(0.76)
|
|
August
31, 2017
|
1,189,739
|
(2,550,314)
|
(0.83)
|
(0.83)
|
|
May
31, 2017
|
2,001,512
|
(1,805,329)
|
(0.59)
|
(0.59)
|
|
February
28, 2017
|
1,235,366
|
(1,990,861)
|
(0.66)
|
(0.66)
|
|
November
30, 2016
|
569,096
|
(3,913,304)
|
(1.34)
|
(1.34)
|
|
August
31, 2016
|
554,925
|
(2,110,156)
|
(0.74)
|
(0.74)
|
(i)
Quarterly per share
amounts may not sum due to rounding.
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”), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As of May 31, 2018, the
Company was not involved in any material unconsolidated SPE
transactions.
Contractual Obligations
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’s estimate
and assumptions about these obligations, including their duration,
the possibility of renewal, anticipated actions by third parties,
and other factors. Operating lease obligations relate to the lease
of premises for the Combined Properties which will expire in
November 2020, subject to a five year renewal option. The Company
also has an option to purchase the Combined Properties up to
November 30, 2020 based on a fair value purchase formula but does
not currently expect to exercise this option in 2018.
|
As
of May 31, 2018
|
Less
than3 months
|
3 to 6 months
|
6 to
9months
|
9
months to 1 year
|
Greater
than1 year
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Third
parties
|
|
|
|
|
|
|
|
Accounts
payable
|
2,931,487
|
-
|
-
|
-
|
-
|
2,931,487
|
|
Accrued
liabilities
|
708,575
|
-
|
-
|
-
|
-
|
708,575
|
|
Related
parties
|
|
|
|
|
|
|
|
Employee costs
payable
|
223,698
|
-
|
-
|
-
|
-
|
223,698
|
|
Convertible
debenture
|
40,805
|
1,363,450
|
-
|
-
|
-
|
1,404,255
|
|
|
3,904,565
|
1,363,450
|
-
|
-
|
-
|
5,268,015
|
47
Equity Offerings
For
information regarding certain registered direct offerings by us
within the past 12 months, see “Prior Sales.”
At-The-Market Termination
On
March 13, 2018, we terminated the continuous offering by us under
the prospectus supplement dated July 18, 2017 and prospectus dated
July 17, 2017 in respect of our at-the-market program. If we seek
to offer and sell Common Shares under our at-the-market program, we
will file another prospectus supplement prior to making such
additional offers and sales. We are not required to sell shares
under the equity distribution agreement that we entered into with
Roth Capital Partners, LLC, or Roth, in November 2013, relating to
our at-the-market program. There can be no assurance that any
additional shares will be sold under our at-the-market program. For
further information regarding the at-the-market program and sales
thereunder, see “—Risk Factors--Sales of a
significant number of our Common Shares in the public markets, or
the perception that such sales could occur, could depress the
market price of the Common Shares.”
For
more information about these offerings, see the documents we have
filed with the SEC in connection with such offerings. See
“Where You Can Find More
Information; Incorporation by Reference” in this prospectus.
The
following table sets forth our capitalization as of May 31,
2018:
●
on an actual basis,
adjusted to reflect the 1-for-10 reverse split effected September
12, 2018, without giving effect to this offering and the use of net
proceeds as discussed in “Use of Proceeds”; and
●
on an as-adjusted
basis to reflect this offering and the use of net proceeds
therefrom as discussed in “Use of Proceeds.”
This
capitalization table should be read in conjunction with our report
on Form 6-K including our financial statements in respect of the
three months and six months ended May 31, 2018, and the other
financial information included and incorporated by reference in
this prospectus.
As of
May 31, 2018, we had cash totaling $1.4 million.
|
|
As
of May 31, 2018
|
|
|
|
Actual
|
As
Adjusted
|
|
Short term debt-due
to related parties based on contractual maturities:
|
$1,403,224
|
$
|
|
Common Shares,
unlimited amount authorized, 4,353,678 issued and
outstanding:
|
$38,697,900
|
$
|
|
|
$40,101,124
|
$
|
We
estimate that the net proceeds to us from this offering will be
approximately $ million, based on an assumed public
offering price per Unit of $ , the last reported sale price of our
Common Shares on Nasdaq on , 2018, assuming the sale of Units and
no sale of any Pre-Funded Units in this offering, after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us, and excluding the proceeds, if
any, from the exercise of Warrants issued pursuant to this
offering. If the underwriter exercises its option to purchase the
additional Units in full, we estimate that the net proceeds will be
approximately $ million, based on an assumed public offering
price per Unit of $ , the last reported sale price of our Common
Shares on Nasdaq on , 2018, assuming the sale of Units and no sale
of any Pre-Funded Units in this offering, after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, and excluding the proceeds, if any, from
the exercise of the Warrants issued pursuant to this
offering.
We
currently intend to use the net proceeds from this offering for
general corporate purposes, which may include working capital,
capital expenditures, R&D, accounts payable, and other
commercial expenditures. We expect from time to time to evaluate
the acquisition of products and technologies for which a portion of
the net proceeds may be used, although we currently are not
planning or negotiating any such transactions.
The
amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the amount and timing of
the proceeds from this offering and progress with the clinical
development of our product candidates. Expenditures will also
depend upon the establishment of collaborative arrangements with
other companies, the availability of additional financing and other
factors. Investors will be relying on the judgment of our
management regarding the application of the proceeds of any sale of
shares of our securities.
48
As of
the date of this prospectus, we cannot specify with certainty all
of the particular uses of the proceeds from this offering.
Accordingly, we will retain broad discretion over the use of such
proceeds. Pending the use of the net proceeds from this offering as
described above, we intend to invest the net proceeds in
investment-grade, interest-bearing securities.
The
actual offering price per Unit and Pre-Funded Unit, and the
exercise price of the Warrants, as applicable, will be as
determined by negotiation between us and the underwriter at the
time of pricing, and may be at a discount to the current market
price of our Common Shares. These estimates exclude the proceeds,
if any, from the exercise of the Warrants in this offering. If all
of the Warrants sold in this offering were to be exercised in cash
at an assumed exercise price of $ per Common Share, we would
receive additional net proceeds of approximately $ million.
However, the Warrants contain a cashless exercise provision that
permits exercise of the Warrants on a cashless basis (i) at
any time when there is no effective registration statement under
the U.S. Securities Act, covering the issuance of the underlying
Common Shares or (ii) on the expiration date of the Warrant.
We cannot predict when or if the Warrants will be exercised or
whether they will be exercised for cash. It is possible that the
Warrants may be exercised solely on a cashless basis.
A
$ increase or decrease in the assumed public
offering price per Unit of $ , the last reported sale price of our
Common Shares on Nasdaq on , 2018, would increase or decrease the
net proceeds to us from this offering by $ million, assuming
that the number of Units offered by us, as set forth on the cover
page of this prospectus, remains the same, assuming no sale of any
Pre-Funded Units, after deducting the estimated underwriter
discounts and commissions and estimated offering expenses payable
by us, and excluding the proceeds, if any, from the exercise of the
Warrants issued pursuant to this offering.
Similarly, each
increase or decrease of Units offered by us would increase or
decrease the net proceeds to us by approximately $ million,
assuming the assumed public offering price per Unit of $ remains
the same, assuming no sale of any Pre-Funded Units, after deducting
the underwriting discounts and commissions and estimated offering
expenses payable by us, and excluding the proceeds, if any, from
the exercise of the Warrants issued pursuant to this
offering.
The
following is a statement of the expenses, other than any
underwriting discounts and commission and expenses reimbursed by
us, to be incurred in connection with a distribution of the
securities registered under this registration
statement.
|
U.S. SEC
registration fee
|
$2,007
|
|
Nasdaq and TSX
listing expenses
|
21,200
|
|
FINRA filing
fee
|
*
|
|
Printing
expenses
|
*
|
|
Legal fees and
expenses
|
325,000
|
|
Accountants’
fees and expenses
|
75,000
|
|
Miscellaneous
|
10,000
|
|
Total
|
$*
|
*To be
provided by amendment. All amounts in the table are estimates
except the U.S. Securities and Exchange Commission registration
fee, the Nasdaq and TSX listing fees and the FINRA filing
fee.
We have
entered into an underwriting agreement
dated
, 2018, with H.C. Wainwright & Co., LLC (“H.C.
Wainwright”) as the sole book-running manager of this
offering. Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriter and the
underwriter has agreed to purchase from us the Units and any
Pre-Funded Units, at the public offering prices less the
underwriting discounts and commissions set forth on the cover page
of this prospectus. The public offering prices shown on the cover
page of this prospectus were determined by negotiation between us
and the underwriter at the time of pricing, and may be at a
discount to the current market price.
49
A copy
of the underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The
securities we are offering are being offered by the underwriter
subject to certain conditions specified in the underwriting
agreement.
We have
been advised by the underwriter that it proposes to offer the Units
and Pre-Funded Units directly to the public at the public offering
prices set forth on the cover page of this prospectus. Any Units
and Pre-Funded Units sold by the underwriter to securities dealers
will be sold at the public offering prices less a selling
concession not in excess of $ per share.
The
underwriting agreement provides that the underwriter’s
obligation to purchase the securities we are offering is subject to
conditions contained in the underwriting agreement. The underwriter
is obligated to purchase and pay for all of the securities offered
by this prospectus.
No
action has been taken by us or the underwriter that would permit a
public offering of our securities in any jurisdiction where action
for that purpose is required. None of the securities included in
this offering may be offered or sold, directly or indirectly, nor
may this prospectus or any other offering material or
advertisements in connection with the offer and sales of any of the
securities be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the
applicable rules and regulations of that jurisdiction. Persons who
receive this prospectus are advised to inform themselves about and
to observe any restrictions relating to this offering of the
securities and the distribution of this prospectus. This prospectus
is neither an offer to sell nor a solicitation of any offer to buy
the securities in any jurisdiction where that would not be
permitted or legal.
The
underwriter has advised us that it does not intend to confirm sales
to any accounts over which it exercises discretionary
authority.
Underwriting Discounts, Commissions and Expenses
We have
agreed to pay an underwriter discount equal to 8% of the aggregate
gross proceeds raised in this offering.
The
following table shows the public offering price, underwriting
discounts and commissions and proceeds, before expenses to us.
These amounts are shown assuming both no exercise and full exercise
of the underwriter’s option to purchase additional
securities.
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|
Total
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|
|
|
Per Unit | Per Pre-Funded Unit | Without Option Exercise |
With Full Option
Exercise
|
|
Public
offering price
|
|
|
|
|
|
Underwriting
discounts and commissions
|
|
|
|
|
|
Proceeds,
before expenses, to us
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|
|
|
|
We
estimate the total expenses payable by us for this offering to be
approximately $ million, which amount includes (i) an
assumed underwriting discounts and commissions of $ million
($ million if the underwriter’s option to purchase
additional securities is exercised in full) based upon the assumed
public offering price per Unit of $ (the last reported sale price
of our Common Shares on Nasdaq on , 2018), (ii) an assumed
management fee in the amount of $ which represents 1% of the
assumed aggregate offering price, (iii) $35,000
non-accountable expense allowance payable to the underwriter,
(iv) reimbursement of the accountable expenses of the
underwriter equal to $100,000 (none of which has been paid in
advance), including the legal fees of the underwriter being paid by
us, and (v) other estimated expenses of approximately $433,000
which include legal, accounting, printing costs and various fees
associated with the registration and listing of our
shares.
Right of First Refusal
We have
also granted the underwriter, for a period of ten months from the
closing date of this offering, a right of first refusal to act as
sole book-running manager for each and every future public or
private equity or debt offering by us or any of our successors or
subsidiaries. We have also agreed to a tail fee equal to the cash
and warrant compensation in this offering if any investor to which
the underwriter introduced us with respect to this offering during
the term of its engagement provides us with further capital in a
public or private offering or capital raising transaction, with
certain exceptions, during the 12 month period following
termination of our engagement of the underwriter.
50
Option to Purchase Additional Securities
We have
granted the underwriter the option to purchase up to
additional Common Shares at a purchase price of $ per share
and/or Warrants to purchase up to an aggregate of
Common Shares at a purchase price of $ per Warrant with an
exercise price of $ per Common Share, less the underwriting
discounts and commissions. The underwriter may exercise its option
at any time and from time to time within 30 days from the date of
this prospectus. If any additional Units are purchased pursuant to
the option, the underwriter will offer these securities on the same
terms as those on which the other Units are being offered
hereby.
Listing
Our
Common Shares are currently traded on the TSX and on Nasdaq under
the symbol “IPCI.” See “Prospectus Summary-Recent
Developments—Nasdaq Notices and Nasdaq Hearings Panel Grant
of Request for Continued Listing” and “—Risk
Factors--Our Common Shares will be delisted from the Nasdaq Capital
Market if we do not satisfy certain requirements of the Nasdaq
Hearing Panel by September 28, 2018” in this prospectus for
important information about the listing of our Common Shares on
Nasdaq. On September , 2018, the last reported sale price of the
Common Shares was $ per share. We do not intend to apply for
listing of the Pre-Funded Warrants or the Warrants on any
securities exchange or other nationally recognized trading system.
There is no established public trading market for the Pre-Funded
Warrants or the Warrants, and we do not expect a market to
develop.
Lock-up Agreements
We
have agreed, subject to certain exceptions, not to offer, issue,
sell, contract to sell, encumber, grant any option for the sale of
or otherwise dispose of any Common Shares or other securities
convertible into or exercisable or exchangeable for Common Shares
for a period of 90 days after the effective date of the
registration statement of which this prospectus is a part without
the prior written consent of H.C. Wainwright.
In
addition, each of our officers, directors and certain existing
shareholders have agreed not to offer, pledge, sell, contract to
sell, grant any option or contract to purchase, purchase any option
or contract to sell, or otherwise dispose of, directly or
indirectly, any Common Shares or any securities convertible into,
exercisable for, or exchangeable for Common Shares, or enter into
any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the
Common Shares for a period of 90 days after the effective date
of the registration statement of which this prospectus is a part
without the prior written consent of H.C. Wainwright.
H.C.
Wainwright may in its sole discretion and at any time without
notice release some or all of the shares subject
to lock-up agreements prior to the expiration of
the lock-up period. When determining whether or not to
release shares from the lock-up agreements, H.C.
Wainwright will consider, among other factors, the security
holder’s reasons for requesting the release, the number of
shares for which the release is being requested and market
conditions at the time.
Stabilization, Short Positions and Penalty Bids
The
underwriter may engage in syndicate covering transactions,
stabilizing transactions and penalty bids or purchases for the
purpose of pegging, fixing or maintaining the price of our Common
Shares:
●
Syndicate covering
transactions involve purchases of securities in the open market
after the distribution has been completed in order to cover
syndicate short positions. Such a naked short position would be
closed out by buying securities in the open market. A naked short
position is more likely to be created if the underwriter is
concerned that there could be downward pressure on the price of the
securities in the open market after pricing that could adversely
affect investors who purchase in the offering.
●
Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specific
maximum.
●
Penalty bids permit
the underwriter to reclaim a selling concession from a syndicate
member when the securities originally sold by the syndicate member
are purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
These
syndicate covering transactions, stabilizing transactions and
penalty bids may have the effect of raising or maintaining the
market prices of our securities or preventing or retarding a
decline in the market prices of our securities. As a result, the
price of our securities may be higher than the price that might
otherwise exist in the open market. Neither we nor the underwriter
make any representation or prediction as to the effect that the
transactions described above may have on the price of our
securities. These transactions may be effected on Nasdaq, in the
over-the-counter market or on any other trading market and, if
commenced, may be discontinued at any time.
51
In
connection with this offering, the underwriter also may engage in
passive market-making transactions in our securities in accordance
with Regulation M during a period before the commencement of
offers or sales of our securities in this offering and extending
through the completion of the distribution. In general, a passive
market maker must display its bid at a price not in excess of the
highest independent bid for that security. However, if all
independent bids are lowered below the passive market maker’s
bid, that bid must then be lowered when specific purchase limits
are exceeded. Passive market-making may stabilize the market price
of the securities at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued
at any time.
Neither
we nor the underwriter make any representation or prediction as to
the direction or magnitude of any effect that the transactions
described above may have on the prices of our securities. In
addition, neither we nor the underwriter make any representation
that the underwriter will engage in these transactions or that any
transactions, once commenced, will not be discontinued without
notice.
Indemnification
The underwriting agreement provides that we will
indemnify H.C. Wainwright against specified liabilities, including
liabilities under the U.S. Securities Act. H.C. Wainwright may be deemed to
be an underwriter within the meaning of Section 2(a)(11) of
the U.S. Securities Act, and
any commissions received by it and any profit realized on the
resale of the shares sold by it while acting as principal might be
deemed to be underwriting discounts or commissions under the
U.S. Securities Act. As an
underwriter, H.C. Wainwright would be required to comply with
the U.S. Securities Act and the
U.S. Exchange Act, including without limitation,
Rule 10b-5 and Regulation M under the U.S. Exchange Act.
These rules and regulations may limit the timing of purchases and
sales of Common Shares, overallotment purchase rights and warrants
by H.C. Wainwright acting as principal. Under these rules and
regulations, H.C. Wainwright:
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|
●
|
may not
engage in any stabilization activity in connection with our shares;
and
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●
|
may not
bid for or purchase any of our shares or attempt to induce any
person to purchase any of our shares, other than as permitted under
the U.S. Exchange Act, until it has completed its participation in
the distribution of shares in this offering.
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Other Relationships
H.C. Wainwright and its respective
affiliates have provided, and may in the future provide, various
investment banking, financial advisory and other
services to us and our affiliates
for which services they have received, and may in the future
receive, customary fees. In the
course of their businesses, H.C. Wainwright and its affiliates may
actively trade our securities or loans for their own account or for
the accounts of customers, and, accordingly, H.C. Wainwright and
its affiliates may at any time hold long or short positions in such
securities or loans. H.C. Wainwright acted as our placement agent
in connection with our registered direct offering and concurrent
private placement we consummated in October 2017 and our two
registered direct offerings and concurrent private placements we
consummated in March 2018, for which it received compensation for
each such offering. Except for services provided in connection with
this offering, and except as set forth in this paragraph, H.C.
Wainwright has not provided any investment banking or other
financial services during the 180-day period preceding the date of
this prospectus.
In
January 2013, we completed the private placement financing of the
2013 Debenture. The 2013 Debenture bears interest at a rate of 12%
per annum, payable monthly, is pre-payable at any time at our
option, and is convertible at any time into Common Shares at a
conversion price of $30.00 per Common Share at the option of the
holder. Drs. Isa and Amina Odidi, who are directors, executive
officers and principal shareholders of our Company, provided us
with the original $1.5 million of the proceeds for the 2013
Debenture. In December 2016, a principal repayment of $150,000 was
made on the 2013 Debenture and the maturity date was extended until
April 1, 2017. Effective September 28, 2017, the maturity date for
the 2013 Debenture was further extended to October 1, 2018. We
currently expect to repay the current outstanding principal amount,
on the 2013 Debenture, of $1,350,000 on or about October 1, 2018,
if we then have cash available.
52
To our
knowledge, Armistice Capital Master Fund, Ltd. and/or its
affiliates (collectively “Armistice”), currently a
holder of in excess of 10% of our outstanding Common Shares,
participated in (i) a registered direct offering in October
2017, pursuant to a placement agent agreement dated October 10,
2017 between the Company and H.C. Wainwright, and (ii) the
registered direct offerings completed in March 2018, pursuant to
placement agent agreements dated March 12, 2018 and March 18, 2018
between the Company and H.C. Wainwright.
On
September 10, 2018 we completed the private placement financing of
the 2018 Debenture. The 2018 Debenture bears interest at a rate of
10% per annum, payable monthly, may be prepaid at any time at our
option, and is convertible into Common Shares at any time prior to
the maturity date at a conversion price of $3.00 per Common Share
at the option of the holder. Drs. Isa and Amina Odidi, who are
directors, executive officers and principal shareholders of our
Company, provided us with the original $500,000 of proceeds for the
2018 Debenture. The maturity date for the 2018 Debenture is
September 1, 2020.
Since
the beginning of our preceding three financial years to the date
hereof, other than discussed above, there have been no transactions
or proposed transactions which are material to us or to any of our
associates, holders of 10% of the our outstanding shares, to our
directors or officers or any transactions that are unusual in their
nature or conditions to which we or any of our subsidiaries were a
party.
Our
Corporate Governance Committee, made up of independent directors,
oversees any potential transaction and negotiation that could give
rise to a related party transaction or create a conflict of
interest, and conducts an appropriate review.
Our
authorized share capital consists of an unlimited number of Common
Shares, all without nominal or par value and an unlimited number of
Preference Shares issuable in series. As of September 18, 2018,
there were 4,353,678 Common Shares and no Preference Shares issued
and outstanding.
All
historical references to Common Shares, warrants and options
outstanding prior to September 12, 2018 and the related exercise
prices and conversion prices in this prospectus have been adjusted
to reflect the effect of the 1-for-10 reverse split effected in
September 2018. The reverse split is intended to establish the
basis for the shares to trade above US$1.00, as per the minimum bid
listing requirement of Nasdaq; however, no assurance can be given
that we will be able to regain compliance with Nasdaq’s
minimum bid requirement (and other listing requirements) or that,
if compliance is regained, that we will be able to maintain
compliance with Nasdaq’s listing requirements.
Common Shares
Each of
our Common Shares entitles the holder thereof to one vote at any
meeting of our shareholders, except meetings at which only holders
of a specified class of shares are entitled to vote. Common Shares
are entitled to receive, as and when declared by the Board of
Directors, dividends in such amounts as shall be determined by the
Board of Directors. Subject to the prior rights of the holders of
any Preference Shares, the holders of Common Shares have the right
to receive our remaining property in the event of our liquidation,
dissolution, or winding-up, whether voluntary or
involuntary.
Preference Shares
The
Preference Shares may at any time and from time to time be issued
in one or more series. The Board of Directors will, by resolution,
from time to time, before the issue thereof, fix the rights,
privileges, restrictions and conditions attaching to the Preference
Shares of each series. Except as required by law, the holders of
any series of Preference Shares will not as such be entitled to
receive notice of, attend or vote at any meeting of our
shareholders. Holders of Preference Shares will be entitled to
preference with respect to payment of dividends and the
distribution of assets in the event of our liquidation, dissolution
or winding-up, whether voluntary or involuntary, or any other
distribution of our assets among our shareholders for the purpose
of winding up our affairs, on such shares over the Common Shares
and over any other shares ranking junior to the Preference
Shares.
Warrants
At
September 18, 2018, an aggregate of 824,570 Common Shares were
issuable upon the exercise of outstanding Common Share purchase
warrants, with a weighted average exercise price of $9.92 per
Common Share.
53
Deferred Share Units
Effective May 28,
2010, our shareholders approved a Deferred Share Unit
(“DSU”) Plan (the “DSU Plan”) and the
reservation of 11,000 Common Shares for issuance thereunder for DSU
grants to our non-management directors. The DSU Plan permits
certain non-management directors to defer receipt of all or a
portion of their Board fees until termination of the Board service
and to receive such fees in the form of Common Shares at that time.
A DSU is a unit equivalent in value to one of our Common Shares
based on the trading price of our Common Shares on the TSX. The DSU
Plan is administered by the Board or a committee
thereof.
The key
features of the DSU plan are as follows:
●
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 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.
●
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.Upon termination of Board
service, the director will be able to redeem DSUs based upon the
then market price of our Common Shares on the date of redemption in
exchange for any combination of cash or Common Shares as the Board
may determine.
At
September 18, 2018, there were 10,279 DSUs issued and outstanding.
At September 18, 2018, 721 DSUs are reserved for issuance under our
DSU plan.
Restricted Share Units
The
Company established the restricted share unit (“RSU”)
Plan (the “RSU Plan”) and the reservation of 33,000
Common Shares of issuance thereunder 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. Employees and officers,
including both full-time and part-time employees of the Company and
any designated affiliate of the Company are eligible to participate
in the RSU Plan; however, directors of the Company who are not also
serving as employees of officers of the Company may not participate
in such plan. 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, based on
individual and/or corporate performance factors as determined by
the Board.
The key
features of the RSU Plan are as follows:
●
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 of
individual and/or corporate performance) 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.
54
● If
an “event of termination” of employment 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.
● 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.
Options
The
option plan (the “Option Plan”) was adopted effective
October 22, 2009 as part of the IPC Arrangement Agreement
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 as determined by the
Board.
The key
features of the Option Plan are as follows:
● 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 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 C$100,000.
● The
Board determines the exercise price of each option at the time the
option is granted, provided that such price cannot be 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 33 1/3% 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, provided that no such option term shall exceed
ten years.
As of
September 18, 2018, there were 561,316 Common Shares issuable upon
the exercise of outstanding options. The weighted average exercise
price of these options is $31.50 per Common Share. As at September
18, 2018, up to 150,455 additional Common Shares were reserved for
issuance under our Option Plan.
2013 Convertible Debenture
On
January 10, 2013, we completed a private placement financing of the
2013 Debenture in the original principal amount of $1.5 million.
The 2013 Debenture was originally due to mature on January 1, 2015,
but through a series of extensions, the current maturity date is
October 1, 2018. The 2013 Debenture bears interest at a rate of 12%
per annum, payable monthly, is pre-payable at any time at our
option, and is convertible at any time into Common Shares at a
conversion price of $30.00 per Common Share (post reverse-split) at
the option of the holder. Drs. Isa and Amina Odidi, who are
directors, executive officers and principal shareholders of our
Company, provided us with the $1.5 million of the proceeds for the
2013 Debenture. Effective December 1, 2016, the maturity date for
the 2013 Debenture was extended to April 1, 2017 and a principal
repayment of $150,000 was made at the time of the extension. After
giving effect to such partial repayment, the 2013 Debenture is now
convertible at any time into 45,000 Common Shares at a conversion
price of $30.00 per Common Share at the option of the holder. We
currently expect to repay the current net amount of $1,350,000 on
or about October 1, 2018, if we then have cash
available.
55
2018 Convertible Debenture
On
September 10, 2018 we completed the private placement financing of
the 2018 Debenture in the principal amount of $500,000. The 2018
Debenture matures on September 1, 2020. The 2018 Debenture bears
interest at a rate of 10% per annum, payable monthly, is
pre-payable at any time at our option, and is convertible into
Common Shares at any time prior to the maturity date at a
conversion price of $3.00 per Common Share at the option of the
holder. Drs. Isa and Amina Odidi, who are directors, executive
officers and principal shareholders of our Company, provided us
with the original $500,000 of proceeds for the 2018
Debenture.
Registration Rights
We
conducted a private placement of units comprised of Common Shares
and warrants in February, 2011, which was exempt from registration
under the U.S. Securities Act pursuant to Regulation D and Section
4(a)(2) and/or Regulation S thereof and other available
exemptions. As such, the Common Shares, the warrants, and the
Common Shares underlying the warrants may not be offered or sold in
the United States unless they are registered under the U.S.
Securities Act, or an exemption from the registration requirements
of the U.S. Securities Act is available.
In
connection with the private placement, we agreed to file a
registration statement on Form F-3, or the Registration Statement,
within 40 days after the closing and use our best efforts to have
it declared effective within 150 days after the closing to register
(i) 100% of the Common Shares issued in the private placement;
and (ii) 100% of the Common Shares underlying the investor
warrants issued in the private placement, or the Registrable
Securities.
The
Registration Statement was declared effective as of March 30, 2011.
If (i) the Registration Statement ceases to be continuously
effective for more than twenty consecutive calendar days or more
than an aggregate of thirty calendar days during any consecutive
12-month period, or (ii) at a time in which the Registrable
Securities cannot be sold under the Registration Statement, we
shall fail for any reason to satisfy the current public information
requirement under Rule 144 as to the applicable Registrable
Securities, we shall pay to the investors, on a pro rata basis,
partial liquidated damages of 1% of the aggregate purchase price
paid by each investor on the occurrence of an event listed above
and for each calendar month (pro rata for any period less than a
calendar month) from an event, until cured.
The
securities shall cease to be Registrable Securities when
(i) they have been sold (A) pursuant to a registration
statement; or (B) in accordance with Rule 144 or any other
rule of similar effect; or (ii) such securities become
eligible for resale without volume or manner-of-sale restrictions,
and when either we are compliant with any current public
information requirements pursuant to Rule 144 or the current public
information requirements no longer apply.
We are
offering (i) up to Units, each Unit consisting
of one Common Share and one Warrant to purchase one Common Share,
or (ii) up to Pre-Funded Units, each Pre-Funded
Unit consisting of one Pre-Funded Warrant to purchase one Common
Share and one Warrant to purchase one Common Share. For each
Pre-Funded Unit we sell, the number of Units we are offering will
be decreased on a one-for-one basis. The Common Share and
accompanying Warrant included in each Unit will be issued
separately, and the Pre-Funded Warrant to purchase one Common Share
and the accompanying Warrant included in each Pre-Funded Unit will
be issued separately. Units or Pre-Funded Units will not be issued
or certificated. We are also registering the Common Shares included
in the Units and the Common Shares issuable from time to time upon
exercise of the Warrants and the Pre-Funded Warrants, the Warrants
included in the Units and the Pre-Funded Units offered hereby and
the Pre-Funded Warrants included in the Pre-Funded
Units.
Common Shares
The
material terms and provisions of our Common Shares and each other
class of our securities which qualifies or limits Common Shares are
described under the caption “Description of Share
Capital” in this prospectus.
The Warrants
The
following is a summary of all material terms and provisions of the
Warrants that are being offered hereby; however, it is not a complete
description of all terms and is subject to, and qualified in its
entirety by, the provisions of the Warrant, the form of
which has been filed as an exhibit to the registration statement of
which this prospectus is a part. Prospective investors should
carefully review the terms and provisions of the form of Warrant
for a complete description of the terms and conditions of the
Warrants.
56
Duration and Exercise Price
Each
Warrant included in the Units and Pre-Funded Units offered hereby
will have an initial exercise price equal to $ per
Common Share. The Warrants will be immediately exercisable and may
be exercised until . The exercise price and
number of Common Shares issuable upon exercise is subject to
appropriate adjustment in the event of stock dividends, stock
splits, reorganizations or similar events affecting our Common
Shares and the exercise price. The Warrants will be issued
separately from the Common Shares or Pre-Funded Warrants sold as
part of the Units or Pre-Funded Units, as the case may be, and may
be transferred separately immediately thereafter. Warrants will be
issued in certificated form only. A Warrant to purchase
one Common Share will be included in each Unit or Pre-Funded Unit
purchased in this offering.
Exercisability
The
Warrants will be exercisable, at the option of each holder, in
whole or in part, by delivering to us a duly executed exercise
notice accompanied by payment in full for the number of Common
Shares purchased upon such exercise (except in the case of a
cashless exercise as discussed below). A holder (together with its
affiliates) may not exercise any portion of the Warrant to the
extent that the holder would own more than 4.99% of the outstanding
Common Shares immediately after exercise, except that upon at least
61 days’ prior notice from the holder to us, the holder may
increase the amount of ownership of outstanding Common Shares after
exercising the holder’s Warrants up to 9.99% of the number of
Common Shares outstanding immediately after giving effect to the
exercise, as such percentage ownership is determined in accordance
with the terms of the Warrants.
Cashless Exercise
If, at
the time a holder exercises its Warrants, a registration statement
registering the issuance of the Common Shares underlying the
Warrants under the U.S. Securities Act is not then effective or the
prospectus contained therein is not available for an issuance of
the Common Shares underlying the Warrants to the holder, then in
lieu of making the cash payment otherwise contemplated to be made
to us upon such exercise in payment of the aggregate exercise
price, the holder may elect instead to receive upon such exercise
(either in whole or in part) the net number of Common Shares
determined according to a formula set forth in the
Warrant.
Fundamental Transactions
In the
event of any fundamental transaction, as described in the Warrants
and generally including any merger with or into another entity,
sale of all or substantially all of our assets, tender offer or
exchange offer, or reclassification of our Common Shares, then upon
any subsequent exercise of a Warrant, the holder will have the
right to receive as alternative consideration, for each Common
Share that the holder would have received upon such holder’s
exercise of the Warrant immediately prior to the occurrence of such
fundamental transaction, the number of common shares of the
successor or acquiring corporation or of our Company, if it is the
surviving corporation, and any additional consideration receivable
upon or as a result of such transaction by a holder of the number
of Common Shares for which the holder would have received upon such
holder’s exercise of the Warrant on the date of the
consummation of such fundamental transaction.
Transferability
Subject
to applicable laws, the Warrant may be transferred at the option of
the holder upon surrender of the Warrant to us together with the
appropriate instruments of transfer.
Fractional Shares
No
fractional Common Shares will be issued upon the exercise of the
Warrants. Rather, the number of Common Shares to be issued will be
rounded up to the nearest whole number.
No Listing
There
is no established trading market for the Warrants, and we do not
expect an active trading market to develop. We do not intend to
apply to list the Warrants on any securities exchange or other
trading market. Without a trading market, the liquidity of the
Warrants will be extremely limited.
57
Rights as a Shareholder
Except
as otherwise provided in the Warrants or by virtue of the
holder’s ownership of Common Shares, such holder of Warrants
does not have the rights or privileges of a holder of Common
Shares, including any voting rights, until such holder exercises
such holder’s Warrants.
Waivers and Amendments
No term
of the Warrants may be amended or waived without the written
consent of the holder of such Warrant.
Pre-Funded Warrants
The
following is a summary of all material terms and provisions of the
Pre-Funded Warrants that are being offered hereby, is not complete and is
subject to, and qualified in its entirety by, the provisions of
the Pre-Funded Warrant, the form of which has been
filed as an exhibit to the registration statement of which this
prospectus is a part. Prospective investors should carefully review
the terms and provisions of the form of Pre-Funded Warrant for a
complete description of the terms and conditions of the Pre-Funded
Warrants.
Any
purchaser in this offering has the ability to purchase Pre-Funded
Units (each Pre-Funded Unit consisting of one Pre-Funded Warrant to
purchase one Common Share and one Warrant to purchase one Common
Share) in lieu of Units that would otherwise result in the
purchaser’s beneficial ownership exceeding 4.99% of our
outstanding Common Shares (or, at the election of the purchaser,
9.99%). This is accomplished through purchasing Pre-Funded Warrants
at a price equal to the purchase price for Units, less $0.01, which
$0.01 is the exercise price for the Pre-Funded Warrants. Each
Pre-Funded Warrant is exercisable for one Common Share as offered
hereunder. Thus, the purchaser is paying substantially all of the
purchase price for a Unit at closing of the offering but is not
deemed to beneficially own the Common Shares included in the Units
until the purchaser exercises the Pre-Funded Warrant. Once
purchased, the purchase price of the Pre-Funded Warrants is not
refundable. While the Pre-Funded Warrants permit waiver of
provisions by us and the holder of the Pre-Funded Warrants, this
would not affect the pre-funding as that is the purchase price of
the instrument which is paid at the time of closing and becomes
part of our proceeds received from this offering.
Duration and Exercise Price
Each
Pre-Funded Warrant will have an initial exercise price per share
equal to $0.01. The Pre-Funded Warrants will be immediately
exercisable and may be exercised at any time until the Pre-Funded
Warrants are exercised in full. The exercise price and number of
Common Shares issuable upon exercise are subject to appropriate
adjustment in the event of stock dividends, stock splits,
reorganizations or similar events affecting our Common Shares and
the exercise price. The Pre-Funded Warrants will be issued
separately from the accompanying Warrants included in the
Pre-Funded Units and may be transferred separately immediately
thereafter.
Exercisability
The
Pre-Funded Warrants will be exercisable, at the option of each
holder, in whole or in part, by delivering to us a duly executed
exercise notice accompanied by payment in full for the number of
Common Shares purchased upon such exercise (except in the case of a
cashless exercise as discussed below). A holder (together with its
affiliates) may not exercise any portion of the Pre-Funded Warrant
to the extent that the holder would own more than 4.99% of the
outstanding Common Shares immediately after exercise, except that
upon at least 61 days’ prior notice from the holder to us,
the holder may increase the amount of ownership of outstanding
Common Shares after exercising the holder’s Pre-Funded
Warrants up to 9.99% of the number of Common Shares outstanding
immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the
Pre-Funded Warrants. Purchasers of Pre-Funded Units in this
offering may also elect prior to the issuance of the Pre-Funded
Warrants to have the initial exercise limitation set at 9.99% of
our outstanding Common Shares.
Cashless Exercise
If, at
the time a holder exercises its Pre-Funded Warrants, a registration
statement registering the issuance of the Common Shares issuable
upon exercise of the Pre-Funded Warrants under the U.S. Securities
Act is not then effective, or the prospectus contained therein is
not available for an issuance of the Common Shares underlying the
Pre-Funded Warrants to the holder, then in lieu of making the cash
payment otherwise contemplated to be made to us upon such exercise
in payment of the aggregate exercise price, the holder may elect
instead to exercise its Pre-Funded Warrants on a cashless basis and
receive upon such exercise (either in whole or in part) the net
number of Common Shares determined according to a formula set forth
in the Pre-Funded Warrant.
58
Fundamental Transactions
In the
event of any fundamental transaction, as described in the
Pre-Funded Warrants and generally including any merger with or into
another entity, sale of all or substantially all of our assets,
tender offer or exchange offer, or reclassification of Common
Shares, then upon any subsequent exercise of a Pre-Funded Warrant,
the holder will have the right to receive as alternative
consideration, for each Common Share that would have been issuable
upon such exercise immediately prior to the occurrence of such
fundamental transaction, the number of common shares of the
successor or acquiring corporation or of our Company, if it is the
surviving corporation, and any additional consideration receivable
upon or as a result of such transaction by a holder of the number
of Common Shares for which the Pre-Funded Warrant is exercisable
immediately prior to such event.
Transferability
Subject
to applicable laws, a Pre-Funded Warrant may be transferred at the
option of the holder upon surrender of the Pre-Funded Warrant to us
together with the appropriate instruments of transfer.
Fractional Shares
No
fractional Common Shares will be issued upon the exercise of the
Pre-Funded Warrants. Rather, the number of Common Shares to be
issued will be rounded up to the nearest whole number.
Trading Market
There
is no established trading market for the Pre-Funded Warrants on any
securities exchange or nationally recognized trading system, and we
do not expect an active trading market to develop. We do not intend
to list the Pre-Funded Warrants on any securities exchange or other
trading market. Without a trading market, the liquidity of the
Pre-Funded Warrants will be extremely limited.
Rights as a Shareholder
Except
as otherwise provided in the Pre-Funded Warrants or by virtue of
the holder’s ownership of Common Shares, such holder of
Pre-Funded Warrants does not have the rights or privileges of a
holder of Common Shares, including any voting rights, until such
holder exercises such holder’s Pre-Funded
Warrants.
Our
Common Shares are currently listed on the TSX and Nasdaq under the
symbol “IPCI.” Prior to March 20, 2017, our Common
Shares traded on the TSX under the symbol “I”;
effective that date, our TSX trading symbol was harmonized with our
Nasdaq symbol. See “Prospectus Summary-Recent
Developments—Nasdaq Notices and Nasdaq Hearings Panel Grant
of Request for Continued Listing” and “—Risk
Factors--Our Common Shares will be delisted from the Nasdaq Capital
Market if we do not satisfy certain requirements of the Nasdaq
Hearing Panel by September 28, 2018” in this prospectus for
important information about the listing of our Common Shares on
Nasdaq.
59
The
following table indicates, for the relevant periods, the high and
low prices of our common shares on Nasdaq and on the TSX:
|
|
NASDAQ (U.S.$)
|
TSX (C$)
|
||
|
Annual
|
High
|
Low
|
High
|
Low
|
|
2017
|
31.20
|
8.10
|
40.90
|
10.00
|
|
2016
|
33.50
|
14.10
|
45.00
|
17.80
|
|
2015
|
39.20
|
17.30
|
49.90
|
21.60
|
|
2014
|
51.80
|
19.40
|
57.70
|
21.40
|
|
2013
|
64.60
|
15.00
|
67.00
|
15.50
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
|
2018
|
|
|
|
|
|
Second
quarter
|
6.70
|
3.20
|
9.00
|
4.10
|
|
First
quarter
|
10.50
|
6.10
|
12.90
|
7.80
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
Fourth
quarter
|
12.50
|
8.20
|
15.80
|
10.00
|
|
Third
quarter
|
29.20
|
8.10
|
37.30
|
10.00
|
|
Second
quarter
|
26.90
|
18.10
|
35.70
|
24.80
|
|
First
quarter
|
31.20
|
21.10
|
40.90
|
27.80
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
Fourth
quarter
|
33.50
|
16.90
|
45.00
|
22.10
|
|
Third
quarter
|
20.60
|
14.10
|
26.10
|
17.80
|
|
Second
quarter
|
24.20
|
15.30
|
32.20
|
20.00
|
|
First
quarter
|
31.90
|
18.30
|
42.00
|
24.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most recent 6 months
|
|
|
|
|
|
August
2018
|
3.50
|
2.30
|
4.40
|
3.10
|
|
July
2018
|
5.40
|
3.10
|
7.20
|
4.10
|
|
June
2018
|
5.50
|
3.90
|
7.50
|
4.90
|
|
May
2018
|
4.50
|
3.20
|
5.80
|
4.10
|
|
April
2018
|
6.50
|
3.30
|
8.00
|
4.30
|
|
March
2018
|
6.70
|
5.10
|
9.00
|
7.00
|
60
PRIOR
SALES
During
the 12 month period prior to the date of this prospectus, we have
issued Common Shares, or securities convertible into Common Shares,
as follows:
In
November 2013, we entered into an equity distribution agreement
with Roth, pursuant to which we originally could, from time to
time, sell up to 530,548 of our Common Shares for up to an
aggregate of $16.8 million (or such lesser amount as may then be
permitted under applicable exchange rules and securities laws and
regulations) through at-the-market issuances on Nasdaq or
otherwise. Under the equity distribution agreement, we may at our
discretion, from time to time, offer and sell Common Shares through
Roth or directly to Roth for resale to the extent permitted under
Rule 415 under the U.S. Securities Act. Sales of Common Shares
through Roth, if any, will be made at such time and at such price
as are acceptable to us, from time to time, by means of ordinary
brokers’ transactions on Nasdaq or otherwise at market prices
prevailing at the time of sale or as determined by us. We pay Roth
a commission, or allow a discount, of 2.75% of the gross proceeds
we receive from any sales of our Common Shares under the equity
distribution agreement. We have also agreed to reimburse Roth for
certain expenses relating to the at-the-market offering program. As
of the date of this prospectus, we have issued and sold an
aggregate of 474,035 Common Shares with an aggregate offering price
of $13,872,929. There have been no sales under the at-the-market
program during the 12-month period prior to the date of this
prospectus. The Common Shares were offered by us through prospectus
supplements pursuant to our shelf registration statements on Form
F-3 (Registration No. 333-218297, and prior thereto Registration
Nos. 333-178190 and 333-196112) as previously filed and declared
effective by the SEC and the base prospectuses contained
therein.
Pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright, in October 2017, we completed a
registered direct offering of 363,636 Common Shares at a price of
$11.00 per share (post reverse-split) for gross proceeds of
approximately $4 million. We also issued to the investors
unregistered warrants to purchase an aggregate of 181,818 Common
Shares at an initial exercise price of $12.50 per share (post
reverse-split). The warrants became exercisable six months
following the October 13, 2017 closing date and will expire 30
months after the date they became exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
Shelf Registration Statement. The warrants described above were
offered in a private placement under Section 4(a)(2) of the U.S.
Securities Act, and Regulation D promulgated thereunder and, along
with the Common Shares underlying the warrants, have not been
registered under the U.S. Securities Act, or applicable state
securities laws. We also issued to the placement agent 18,181
warrants to purchase Common Shares at an initial exercise price of
$13.75 per share (post reverse-split). The total net proceeds from
the offering were $3.5 million, after deducting offering
expenses.
Pursuant to a
placement agent agreement dated March 12, 2018 between the Company
and H.C. Wainwright, on March 16, 2018, we completed a registered
direct offering of 583,333 Common Shares at a price of $6.00 per
share (post reverse-split) for gross proceeds of approximately $3.5
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 291,666 Common Shares at an initial
exercise price of $6.00 per share (post reverse-split). The
warrants are exercisable six months following the March 16, 2018
closing date and will expire 30 months after the date they become
exercisable. The Common Shares (but not the warrants or the Common
Shares underlying the warrants) were offered by us through a
prospectus supplement pursuant to our Shelf Registration Statement.
The warrants described above were offered in a private placement
under Section 4(a)(2) of the U.S. Securities Act, and Regulation D
promulgated thereunder and, along with the Common Shares underlying
the warrants, have not been registered under the U.S. Securities
Act, or applicable state securities laws. We also issued to the
placement agent 29,166 warrants to purchase Common Shares at an
initial exercise price of $7.50 per share (post reverse-split),
paid $245,000 in cash for placement agent fees and an aggregate of
$75,000 for certain expenses. The total net proceeds from the
offering were approximately $3 million, after deducting offering
expenses.
61
Pursuant to a
placement agent agreement dated March 18, 2018 between the Company
and H.C. Wainwright, on March 21, 2018, we completed a registered
direct offering of 300,000 Common Shares at a price of $6.00 per
share (post reverse-split) for gross proceeds of approximately $1.8
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 150,000 Common Shares at an initial
exercise price of $6.00 per share (post reverse-split). The
warrants are exercisable six months following the March 21, 2018
closing date and will expire 30 months after the date they become
exercisable. The Common Shares (but not the warrants or the Common
Shares underlying the warrants) were offered by us through a
prospectus supplement pursuant to our Shelf Registration Statement.
The warrants described above were offered in a private placement
under Section 4(a)(2) of the U.S. Securities Act, and Regulation D
promulgated thereunder and, along with the Common Shares underlying
the warrants, have not been registered under the U.S. Securities
Act, or applicable state securities laws. We also issued to the
placement agent 15,000 warrants to purchase Common Shares at an
initial exercise price of $7.50 per share(post reverse-split), paid
$126,000 in cash for placement agent fees and an aggregate of
$45,000 for certain expenses. The total net proceeds from the
offering were approximately $1.6 million, after deducting offering
expenses.
During
the 12-month period prior to the date of this prospectus, no
warrants to purchase Common Shares were exercised.
During
the 12-month period prior to the date of this prospectus, 49,600
options were granted and no options were exercised.
During
the 12-month period prior to the date of this prospectus, a total
of 866 deferred share units were granted. For a description of our
deferred share units see “Description of Share
Capital--Deferred Share Units.”
During
the 12-month period prior to the date of this prospectus, no
restricted share units were granted. For a description of our
restricted share units see ”Description of Share
Capital--Restricted Share Units.”
On
September 10, 2018, we completed the private placement financing of
the 2018 Debenture.
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.
The following description is not intended to constitute a complete
analysis of all tax consequences relating to our Common Shares,
Pre-Funded Warrants and Warrants (sometimes referred to
collectively or individually as our “securities”). You
should consult your own tax advisor concerning the tax consequences
of your particular situation, as well as any tax consequences that
may arise under the laws of any state, local, foreign or other
taxing jurisdiction.
U.S. Federal Income Taxation
The
following are the material U.S. federal income tax consequences of
the acquisition, ownership and disposition of our
securities.
62
The
discussion below of the U.S. federal income tax consequences to
“U.S. Holders” will apply to a beneficial owner of our
securities that is for U.S. federal income tax purposes:
●
an individual
citizen or resident of the United States;
●
a corporation (or
other entity treated as a corporation) that is created or organized
(or treated as created or organized) in or under the laws of the
United States, any state thereof or the District of
Columbia;
●
an estate whose
income is includible in gross income for U.S. federal income tax
purposes regardless of its source; or
●
a trust if (i) a
U.S. court can exercise primary supervision over the trust’s
administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust; or (ii) it has a
valid election in effect under applicable U.S. Treasury regulations
to be treated as a U.S. person.
A
beneficial owner of our securities that is described above is
referred to herein as a “U.S. Holder.” If a beneficial
owner of our securities is not described as a U.S. Holder and is
not an entity treated as a partnership or other pass-through entity
for U.S. federal income tax purposes, such owner will be considered
a “Non-U.S. Holder.” The material U.S. federal income
tax consequences of the acquisition, ownership and disposition of
our securities applicable specifically to Non-U.S. Holders are
described below under the heading “Non-U.S.
Holders.”
This
discussion is based on the Internal Revenue Code of 1986, as
amended (the “Code”), its legislative history, Treasury
regulations promulgated thereunder, published rulings and
administrative guidance from the Internal Revenue Service (IRS),
court decisions and the United States-Canada Income Tax Treaty, all
as currently in effect. These authorities are subject to change or
differing interpretations, possibly on a retroactive
basis.
This
discussion does not address all aspects of U.S. federal income
taxation that may be relevant to any particular holder based on
such holder’s individual circumstances. In particular, this
discussion considers only holders that own and hold our securities
as capital assets within the meaning of Section 1221 of the Code,
and does not address the potential application of the alternative
minimum tax or the U.S. federal income tax consequences to holders
that are subject to special rules, including:
●
financial
institutions, financial services entities, or
underwriters;
●
broker-dealers,
dealers or traders in securities;
●
persons that are
subject to the mark-to-market accounting rules under Section 475 of
the Code;
●
tax-exempt
entities;
●
qualified
retirement plans, individual retirement accounts and other
tax-deferred accounts;
●
governments or
agencies or instrumentalities thereof;
●
insurance
companies;
●
regulated
investment companies;
●
real estate
investment trusts;
●
certain expatriates
or former long-term residents of the United States;
●
persons that
actually or constructively own (including by treating U.S. Holders
of Warrants, Pre-Funded Warrants or other options to acquire our
Common Shares as owning such Common Shares) 10% or more of the
voting power or value of our Common Shares;
●
persons that
acquired our securities pursuant to an exercise of employee
options, in connection with employee incentive plans or otherwise
as compensation;
●
persons that hold
our securities as part of a straddle, constructive sale, hedging,
conversion or other integrated transaction;
63
●
persons whose
functional currency is not the U.S. dollar;
●
passive foreign
investment companies; or
●
controlled foreign
corporations.
This
discussion does not address any aspect of U.S. federal non-income
tax laws, such as gift or estate tax laws, or state, local or
non-U.S. tax laws or, except as discussed herein, any tax reporting
obligations applicable to a holder of our securities. Additionally,
this discussion does not consider the tax treatment of partnerships
or other pass-through entities or persons who hold our securities
through such entities. If a partnership (or other entity classified
as a partnership for U.S. federal income tax purposes) is the
beneficial owner of our securities, the U.S. federal income tax
treatment of a partner in the partnership generally will depend on
the status of the partner and the activities of the partnership.
This discussion also assumes that any distribution made (or deemed
made) to a holder in respect of our securities and any
consideration received (or deemed received) by a holder in
connection with the sale or other disposition of our securities
will be in U.S. dollars. In addition, this discussion also assumes
that we will be and have been treated as a foreign corporation for
U.S. federal income tax purposes. Moreover, this discussion assumes
that a holder will receive only Common Shares and will not be
entitled to a fractional share upon the exercise of a Warrant or a
Pre-Funded Warrant.
We have
not sought, and will not seek, a ruling from the Internal Revenue
Service (the “IRS”) or an opinion of counsel as to any
U.S. federal income tax consequence described herein. The IRS may
disagree with the description herein, and its determination may be
upheld by a court. Moreover, there can be no assurance that future
legislation, regulations, administrative rulings or court decisions
will not adversely affect the accuracy of the statements in this
discussion.
EACH
HOLDER OF OUR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND
NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY
APPLICABLE TAX TREATIES.
Tax Characterization of Pre-Funded Warrants
Although the
appropriate characterization of pre-funded warrants under the tax
law is unsettled, it is likely that the Pre-Funded Warrants will be
treated as Common Shares for U.S. federal income tax purposes.
However, it is possible that the IRS could treat the Pre-Funded
Warrants as warrants to acquire our Common Shares. Any person that
elects to receive Pre-Funded Units in lieu of the Units in this
offering should consult their own tax advisor regarding the
application of the U.S. federal income tax laws to their particular
situation.
Allocation of Purchase Price and Characterization of
Units
Each
Unit and Pre-Funded Unit should be treated for U.S. federal income
tax purposes as an investment unit consisting of one Common Share
(or Pre-Funded Warrant, as the case may be), and one Warrant to
purchase one Common Share. For U.S. federal income tax purposes,
each holder must allocate the purchase price of a Unit or
Pre-Funded Unit between that Common Share (or Pre-Funded Warrant,
as applicable), and one Warrant based on the relative fair market
value of each at the time of issuance. The purchase price allocated
to each Common Share, Pre-Funded Warrant and Warrant generally will
be the holder’s tax basis in such security, as the case may
be. The tax basis for each Pre-Funded Warrant that is treated as a
Common Share should include both the portion of the Pre-Funded
Warrant purchase price allocated to such Pre-Funded Warrant and,
once such Pre-Funded Warrant is exercised, the exercise price
therefor.
U.S. Holders
Taxation of Cash Distributions
Subject
to the passive foreign investment company, or PFIC, rules discussed
below, a U.S. Holder generally will be required to include in gross
income as ordinary income the amount of any cash dividend paid in
respect of our Common Shares. A cash distribution on our Common
Shares generally will be treated as a dividend for U.S. federal
income tax purposes to the extent the distribution is paid out of
our current or accumulated earnings and profits (as determined for
U.S. federal income tax purposes). The portion of such cash
distribution, if any, in excess of such earnings and profits will
be applied against and reduce (but not below zero) the U.S.
Holder’s adjusted tax basis in the Common Shares. Any
remaining excess generally will be treated as gain from the sale or
other taxable disposition of such Common Shares.
64
The
amount of any distribution, and thus potentially of any dividend,
will include any amounts withheld by us in respect of Canadian
taxes. The U.S. dollar amount of any dividend will not be eligible
for the dividends-received deduction generally available to U.S.
corporations under the Code. Dividends will be included in a U.S.
Holder’s income on the date of the U.S. Holder’s
receipt of the dividend. The amount of any dividend income paid in
Canadian dollars will be the U.S. dollar amount calculated by
reference to the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S.
dollars. If the dividend is converted into U.S. dollars on the date
of receipt, a U.S. Holder should not be required to recognize
foreign currency gain or loss in respect of the dividend income. A
U.S. Holder may have foreign currency gain or loss if the dividend
is converted into U.S. dollars after the date of receipt.
Dividends paid to a
U.S. Holder with respect to our Common Shares generally will be
foreign source income, which may be relevant in calculating such
U.S. Holder’s foreign tax credit limitations. Subject to
applicable limitations, some of which vary depending upon the U.S.
Holder’s circumstances, Canadian income taxes withheld from
dividends on Common Shares at a rate not exceeding the rate
provided by the United States-Canada Income Tax Treaty may be
creditable against the U.S. Holder’s U.S. federal income tax
liability. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income.
For this purpose, dividends that we distribute generally should
constitute “passive category income,” or, in the case
of certain U.S. Holders, “general category income.” A
foreign tax credit for foreign taxes imposed on distributions may
be denied if a U.S. Holder does not satisfy certain minimum holding
period requirements. The rules governing foreign tax credits are
complex, and U.S. Holders should consult their tax advisers
regarding the creditability of foreign taxes in their particular
circumstances. In lieu of claiming a foreign tax credit, U.S.
Holders may, at their election, deduct foreign taxes, including any
Canadian withholding tax imposed on distributions, in computing
their taxable income, subject to generally applicable limitations
under U.S. law. An election to deduct foreign taxes instead of
claiming foreign tax credits applies to all foreign taxes paid or
accrued in the taxable year.
With
respect to non-corporate U.S. Holders, any such cash dividends may
be subject to U.S. federal income tax at the lower applicable
regular long term capital gains tax rate (see “- Taxation on
the Disposition of Common Shares, Warrants or Pre-Funded
Warrants” below) provided that (a) our Common Shares are
readily tradable on an established securities market in the United
States or we are otherwise eligible for the benefits of the United
States-Canada Income Tax Treaty, (b) we are not a PFIC, as
discussed below, for either the taxable year in which the dividend
was paid or the preceding taxable year, and (c) certain holding
period requirements are met. On the other hand, if our Common
Shares are not readily tradable on an established securities
market, and we are not otherwise eligible for the benefits of the
United States-Canada Income Tax Treaty, then cash dividends paid by
us to non-corporate U.S. Holders with respect to such Common Shares
will be subject to U.S. federal income tax at ordinary income tax
rates, and not the lower regular long term capital gains tax rate.
Under published IRS authority, shares are considered for purposes
of clause (a) above to be readily tradable on an established
securities market in the United States only if they are listed on
certain exchanges, which presently include Nasdaq. Although our
Common Shares are currently listed and traded on Nasdaq, there is
no assurance that they will continue to be so listed. See
“Prospectus Summary-Recent Developments—Nasdaq Notices
and Nasdaq Hearings Panel Grant of Request for Continued
Listing” and “Risk Factors--Our Common Shares will be
delisted from the Nasdaq Capital Market if we do not satisfy
certain requirements of the Nasdaq Hearing Panel by September 28,
2018” in this prospectus for important information about the
listing of our Common Shares on Nasdaq. U.S. Holders should consult
their own tax advisors regarding the availability of the lower rate
for any cash dividends paid with respect to our Common
Shares.
Adjustments with Respect to Warrants
The
terms of the Warrants and Pre-Funded Warrants provide for an
adjustment to the number of Common Shares for which the warrant may
be exercised or to the exercise price of the warrant in certain
events. An adjustment that has the effect of preventing dilution
generally is not taxable. However, the U.S. Holders of the Warrants
or Pre-Funded Warrants would be treated as receiving a constructive
distribution from us if, for example, the adjustment increases the
warrant holders’ proportionate interest in our assets or
earnings and profits (e.g., through a decrease in the exercise
price of the Warrants or Pre-Funded Warrants) as a result of a
distribution of cash to the holders of our Common Shares, which is
taxable to the U.S. Holders of such Common Shares as described
under “-Taxation of Cash Distributions,” above. Such
constructive distribution would be subject to tax as described
under that section in the same manner as if the U.S. Holders of the
Warrants or Pre-Funded Warrants received a cash distribution from
us equal to the fair market value of such increased
interest.
Taxation on the Disposition of Common Shares, Warrants or
Pre-Funded Warrants
Upon a
sale or other taxable disposition of our Common Shares, Warrants or
Pre-Funded Warrants, and subject to the PFIC rules discussed below,
a U.S. Holder generally will recognize capital gain or loss in an
amount equal to the difference between the amount realized and the
U.S. Holder’s adjusted tax basis in the
securities.
The
regular U.S. federal income tax rate on capital gains recognized by
U.S. Holders generally is the same as the regular U.S. federal
income tax rate on ordinary income, except that long term capital
gains recognized by non-corporate U.S. Holders generally are
subject to U.S. federal income tax at a maximum regular rate of
20%. Capital gain or loss will constitute long term capital gain or
loss if the U.S. Holder’s holding period for the securities
exceeds one year. The deductibility of capital losses is subject to
various limitations. Any such gain or loss that a U.S. Holder
recognizes generally will be treated as U.S. source income or loss
for foreign tax credit limitation purposes.
65
Additional Taxes
U.S.
Holders that are individuals, estates or trusts and whose income
exceeds certain thresholds generally may be subject to a 3.8%
Medicare contribution tax on unearned income, including, without
limitation, dividends on, and gains from the sale or other taxable
disposition of, our Common Shares, Warrants or Pre-Funded Warrants,
subject to certain limitations and exceptions. U.S. Holders should
consult their own tax advisors regarding the effect, if any, of
such tax on their ownership and disposition of our Common Shares,
Warrants or Pre-Funded Warrants.
Exercise or Lapse of a Warrant
Subject
to the PFIC rules discussed below, a U.S. Holder generally will not
recognize gain or loss upon the exercise of a Warrant or Pre-Funded
Warrant for cash. A Common Share acquired pursuant to the exercise
of a Warrant or Pre-Funded Warrant for cash generally will have a
tax basis equal to the U.S. Holder’s tax basis in the Warrant
or Pre-Funded Warrant, increased by the amount paid to exercise the
Warrant or Pre-Funded Warrant. The holding period of such Common
Share generally would begin on the day after the date of exercise
of the Warrant. If a Warrant is allowed to lapse unexercised, a
U.S. Holder generally will recognize a capital loss equal to such
holder’s tax basis in the Warrant.
The tax
consequences of a cashless exercise of Warrants are unclear. A
cashless exercise may be tax-free, either because it is a
nonrealization event (i.e., not a transaction in which gain or loss
is realized) or because the transaction is treated as a
recapitalization for U.S. federal income tax purposes. In either
tax-free situation, a U.S. Holder’s tax basis in the Common
Shares received would equal the U.S. Holder’s basis in the
Warrants surrendered. If the cashless exercise were treated as not
being a realization event, the U.S. Holder’s holding period
in the Common Shares could be treated as commencing on the date
following the date of exercise of the Warrants. If the cashless
exercise were treated as a recapitalization, the holding period of
the Common Shares received would include the holding period of the
Warrants.
It is
also possible that a cashless exercise could be treated as a
taxable exchange in which gain or loss is recognized. In such
event, a U.S. Holder could be deemed to have surrendered a number
of Warrants with a fair market value equal to the exercise price
for the number of Warrants deemed exercised. For this purpose, the
number of Warrants deemed exercised would be equal to the amount
needed to receive on exercise the number of Common Shares issued
pursuant to the cashless exercise of the Warrants. In this
situation, the U.S. Holder would recognize capital gain or loss in
an amount equal to the difference between the fair market value of
the Warrants deemed surrendered to pay the exercise price and the
U.S. Holder’s tax basis in such Warrants deemed surrendered.
Such gain or loss would be long-term or short-term depending on the
U.S. Holder’s holding period in the Warrants. In this case, a
U.S. Holder’s tax basis in the Common Shares received would
equal the sum of the fair market value of the Warrants deemed
surrendered to pay the exercise price and the U.S. Holder’s
tax basis in the Warrants deemed exercised, and a U.S.
Holder’s holding period for the Common Shares should commence
on the date following the date of exercise of the Warrants. There
also may be alternative characterizations of any such taxable
exchange that would result in similar tax consequences, except that
a U.S. Holder’s gain or loss would be
short-term.
Due to
the absence of authority on the U.S. federal income tax treatment
of a cashless exercise of the Warrants, it is unclear which, if
any, of the alternative tax consequences and holding periods
described above would be adopted by the IRS or a court of law.
Accordingly, U.S. Holders should consult their tax advisors
regarding the tax consequences of a cashless exercise of Warrants
or Pre-Funded Warrants.
Passive Foreign Investment Company Rules
A
foreign (i.e., non-U.S.) corporation is classified as a PFIC for a
given taxable year if, during that year, either (a) at least 75% of
its gross income, including its pro rata share of the gross income
of any corporation in which it is considered to own at least 25% of
the shares by value, is passive income, or (b) at least 50% of its
assets, ordinarily determined based on fair market value and
averaged quarterly over the year, including its pro rata share of
the assets of any corporation in which it is considered to own at
least 25% of the shares by value, are held for the production of,
or produce, passive income. Passive income generally includes
dividends, interest, rents and royalties (other than certain rents
or royalties derived from the active conduct of a trade or
business), and gains from the disposition of passive
assets.
We
believe that we were not a PFIC during our 2017 taxable year and
are unlikely to be a PFIC during our 2018 taxable year. However,
our actual PFIC status for our current taxable year (2018) or any
subsequent taxable year is uncertain and will not be determinable
until after the end of such taxable year. Accordingly, there can be
no assurance with respect to our status as a PFIC for our current
taxable year or any subsequent taxable year.
66
The “No election” Alternative – Taxation of
Excess Distributions
If we
are determined to be a PFIC for any taxable year (or portion
thereof) that is included in the holding period of a U.S. Holder of
our Common Shares, Warrants or Pre-Funded Warrants, and, in the
case of our Common Shares (and Pre-Funded Warrants treated as
Common Shares), the U.S. Holder did not make a timely QEF election
for our first taxable year as a PFIC in which the U.S. Holder held
(or was deemed to hold) the Common Shares (or Pre-Funded Warrants
treated as Common Shares), a purging election, a QEF election along
with a purging election, or a mark-to-market election, each as
described below, such holder generally will be subject to special
rules for regular U.S. federal income tax purposes with respect
to:
●
any gain recognized
by the U.S. Holder on the sale or other disposition of its Common
Shares, Warrants or Pre-Funded Warrants; and
●
any “excess
distribution” made to the U.S. Holder (generally, any
distributions to such U.S. Holder during a taxable year of the U.S.
Holder that are greater than 125% of the average annual
distributions received by such U.S. Holder in respect of the Common
Shares during the three preceding taxable years of such U.S. Holder
or, if shorter, such U.S. Holder’s holding period for the
Common Shares).
Under
these rules,
●
·the U.S.
Holder’s gain or excess distribution will be allocated
ratably over the U.S. Holder’s holding period for the Common
Shares, Warrants or Pre-Funded Warrants;
●
the amount of gain
allocated to the U.S. Holder’s taxable year in which the U.S.
Holder recognized the gain or received the excess distribution or
to the period in the U.S. Holder’s holding period before the
first day of our first taxable year in which we qualified as a PFIC
will be taxed as ordinary income in the year the gain is recognized
or the excess distribution is received;
●
the amount
allocated to each other taxable year (or portion thereof) of the
U.S. Holder that is included in its holding period will be taxed at
the highest ordinary tax rate in effect for that year that is
applicable to the U.S. Holder; and
●
the interest charge
generally applicable to underpayments of tax will be imposed in
respect of the tax attributable to each such other taxable year of
the U.S. Holder.
Although a
determination as to our PFIC status is made annually, an initial
determination that we are a PFIC generally will apply for
subsequent years to a U.S. Holder that held (or was deemed to hold)
our Common Shares, Warrants or Pre-Funded Warrants while we were a
PFIC, whether or not we meet the test for PFIC status in those
subsequent years. If we are determined to be a PFIC in any taxable
year, and then cease to meet the test for PFIC status in a
subsequent taxable year, a U.S. Holder may be able to make a
purging election to eliminate this continuing PFIC status with
respect to its Common Shares in certain circumstances. A purging
election generally creates a deemed sale of such Common Shares (and
Pre-Funded Warrants treated as Common Shares) at their fair market
value on the last day of our tax year during which we qualified as
a PFIC (or, in the case of a purging election made in connection
with a QEF election, the first day of our taxable year in which we
qualify as a QEF with respect to such U.S. Holder). Any gain
recognized by the purging election generally will be treated as an
excess distribution subject to the special tax and interest charge
rules described above. As a result of the purging election, the
U.S. Holder generally will increase the adjusted basis in its
Common Shares (and Pre-Funded Warrants treated as Common Shares) by
the amount of gain recognized and will also have a new holding
period in its Common Shares (and Pre-Funded Warrants treated as
Common Shares) for purposes of the PFIC rules.
The QEF Election Alternative
In
general, if we are determined to be a PFIC, a U.S. Holder may avoid
the PFIC tax consequences described above with respect to the
Common Shares (and Pre-Funded Warrants treated as Common Shares) by
making a timely QEF election (or a QEF election along with a
purging election). Pursuant to the QEF election, a U.S. Holder
generally will be required to include in income its pro rata share
of our net capital gains (as long term capital gain) and other
earnings and profits (as ordinary income), on a current basis, in
each case whether or not distributed, in the taxable year of the
U.S. Holder in which or with which our taxable year ends if we are
treated as a PFIC for that taxable year. However, a U.S. Holder may
make a QEF election only if we agree to provide certain tax
information to such holder annually. At this time, we do not intend
to provide U.S. Holders with such information as may be required to
make a QEF election effective.
67
A U.S.
Holder may not make a QEF election with respect to its Warrants to
acquire our Common Shares. As a result, if a U.S. Holder sells or
otherwise disposes of such Warrants (other than upon exercise
thereof), any gain recognized generally will be subject to the
special tax and interest charge rules treating the gain as an
excess distribution, as described above, if we were a PFIC at any
time during the period the U.S. Holder held the Warrants. If a U.S.
Holder that exercises such Warrants properly makes a QEF election
with respect to the newly acquired Common Shares (or has previously
made a QEF election with respect to our Common Shares), the QEF
election will apply to the newly acquired Common Shares, but the
adverse tax consequences attributable to the period prior to
exercise of the Warrants, adjusted to take into account the current
income inclusions resulting from the QEF election, will continue to
apply with respect to such newly acquired Common Shares (which
generally will be deemed to have a holding period for purposes of
the PFIC rules that includes the period the U.S. Holder held the
Warrants), unless the U.S. Holder makes a purging election under
the PFIC rules. The purging election creates a deemed sale of such
Common Shares at their fair market value. The gain recognized by
the purging election will be subject to the special tax and
interest charge rules treating the gain as an excess distribution,
as described above. As a result of the purging election, the U.S.
Holder will have a new basis and holding period in the Common
Shares acquired upon the exercise of the Warrants for purposes of
the PFIC rules
Mark-to-Market Election Alternative
Alternatively, if a
U.S. Holder, at the close of its taxable year while we are
considered a PFIC, owns Common Shares (or Pre-Funded Warrants
treated as Common Shares) in a PFIC that are treated as marketable
stock, the U.S. Holder may make a mark-to-market election with
respect to such Common Shares for such taxable year. If the U.S.
Holder makes a valid mark-to-market election for the first taxable
year of the U.S. Holder in which the U.S. Holder holds (or is
deemed to hold) the Common Shares and for which we are determined
to be a PFIC, such holder generally will not be subject to the PFIC
rules described above with respect to its Common Shares as long as
such shares continue to be treated as marketable stock. Instead, in
general, the U.S. Holder will include as ordinary income for each
year that we are treated as a PFIC the excess, if any, of the fair
market value of its Common Shares at the end of its taxable year
over the adjusted tax basis in its Common Shares. The U.S. Holder
also will be allowed to take an ordinary loss in respect of the
excess, if any, of the adjusted tax basis of its Common Shares over
the fair market value of its Common Shares at the end of its
taxable year (but only to the extent of the net amount of
previously included income as a result of the mark-to-market
election). The U.S. Holder’s adjusted tax basis in its Common
Shares will be adjusted to reflect any such income or loss amounts,
and any further gain recognized on a sale or other taxable
disposition of the Common Shares in a taxable year in which we are
treated as a PFIC generally will be treated as ordinary income.
Special tax rules may also apply if a U.S. Holder makes a
mark-to-market election for a taxable year after the first taxable
year in which the U.S. Holder holds (or is deemed to hold) our
Common Shares and for which we are determined to be a PFIC.
Currently, a mark-to-market election may not be made with respect
to warrants.
The
mark-to-market election is available only for stock that is
regularly traded on a national securities exchange that is
registered with the U.S. Securities and Exchange Commission,
including Nasdaq, or on a foreign exchange or market that is
regulated or supervised by a governmental authority of the country
in which the exchange or market is located and which (A) meets
certain requirements, that are enforced by law, relating to trading
volume, listing, financial disclosure, surveillance and other
requirements that are designed to (i) prevent fraudulent and
manipulative acts and practices, (ii) remove impediments to and
perfect the mechanism of a free and open, fair and orderly, market
and (iii) protect investors and (B) has rules that effectively
promote the active trading of listed stock. Although our Common
Shares are currently listed and traded on Nasdaq, there is no
assurance that they will continue to be so listed. See
“Prospectus Summary-Recent Developments—Nasdaq Notices
and Nasdaq Hearings Panel Grant of Request for Continued
Listing” and “Risk Factors--Our Common Shares will be
delisted from the Nasdaq Capital Market if we do not satisfy
certain requirements of the Nasdaq Hearing Panel by September 28,
2018” in this prospectus for important information about the
listing of our Common Shares on Nasdaq. U.S. Holders should consult
their own tax advisors regarding the availability and tax
consequences of a mark-to-market election with respect to our
Common Shares under their particular circumstances. It appears
that, until regulations are issued permitting such an election,
U.S. Holders of Warrants will not be able to make a mark-to-market
election with respect to such Warrants.
If we
are a PFIC and, at any time, have a foreign subsidiary that is
classified as a PFIC, a U.S. Holder of our securities may be deemed
to own a portion of the shares of such lower-tier PFIC, and
generally could incur liability for the deferred tax and interest
charge described above if we receive a distribution from, or
dispose of all or part of our interest in, or the U.S. Holder were
otherwise deemed to have disposed of an interest in, the lower-tier
PFIC. A mark-to-market election generally would not be available
with respect to such a lower-tier PFIC. U.S. Holders are urged to
consult their own tax advisors regarding the tax issues raised by
lower-tier PFICs.
A U.S.
Holder that owns (or is deemed to own) Common Shares in a PFIC
during any taxable year of the U.S. Holder may have to file an IRS
Form 8621 (whether or not a mark-to-market election is or has been
made) with such U.S. Holder’s U.S. federal income tax return
and provide such other information as may be required by the U.S.
Treasury Department.
68
The
rules dealing with PFICs and purging and mark-to-market elections
are very complex and are affected by various factors in addition to
those described above. Accordingly, U.S. Holders of our securities
should consult their own tax advisors concerning the application of
the PFIC rules to our securities under their particular
circumstances.
Non-U.S. Holders
Cash
dividends paid or deemed paid to a Non-U.S. Holder with respect to
our Common Shares generally will not be subject to U.S. federal
income tax unless such dividends are effectively connected with the
Non-U.S. Holder’s conduct of a trade or business within the
United States (and, if required by an applicable income tax treaty,
are attributable to a permanent establishment or fixed base that
such holder maintains or maintained in the United
States).
In
addition, a Non-U.S. Holder generally will not be subject to U.S.
federal income tax on any gain attributable to a sale or other
taxable disposition of our securities unless such gain is
effectively connected with its conduct of a trade or business in
the United States (and, if required by an applicable income tax
treaty, is attributable to a permanent establishment or fixed base
that such holder maintains or maintained in the United States) or
the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of such sale or
other disposition and certain other conditions are met (in which
case, such gain from U.S. sources generally is subject to U.S.
federal income tax at a 30% rate or a lower applicable tax treaty
rate).
Dividends and gains
that are effectively connected with the Non-U.S. Holder’s
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, are attributable to a
permanent establishment or fixed base that such holder maintains or
maintained in the United States) generally will be subject to
regular U.S. federal income tax at the same regular U.S. federal
income tax rates as applicable to a comparable U.S. Holder and, in
the case of a Non-U.S. Holder that is a corporation for U.S.
federal income tax purposes, may also be subject to an additional
branch profits tax at a 30% rate or a lower applicable tax treaty
rate.
Backup Withholding and Information Reporting
In
general, information reporting for U.S. federal income tax purposes
should apply to distributions made on our securities within the
United States to a U.S. Holder (other than an exempt recipient) and
to the proceeds from sales and other dispositions of our securities
by a U.S. Holder (other than an exempt recipient) to or through a
U.S. office of a broker. Payments made (and sales and other
dispositions effected at an office) outside the United States will
be subject to information reporting in limited circumstances. In
addition, certain information concerning a U.S. Holder’s
adjusted tax basis in securities it owns and adjustments to that
tax basis and whether any gain or loss with respect to such
securities is long term or short term also may be required to be
reported to the IRS.
In
addition, U.S. federal income tax information reporting rules
generally require certain individuals who are U.S. Holders to file
Form 8938 to report the ownership of specified foreign financial
assets if the total value of those assets exceeds an applicable
threshold amount (subject to certain exceptions). For these
purposes, a specified foreign financial asset includes not only a
financial account (as defined for these purposes) maintained by a
foreign financial institution, but also any stock or security
issued by a non-U.S. person, any financial instrument or contract
held for investment that has an issuer or counterparty other than a
U.S. person and any interest in a foreign entity, provided that the
asset is not held in an account maintained by a financial
institution. The minimum applicable threshold amount is generally
U.S. $50,000 in the aggregate, but this threshold amount varies
depending on whether the individual lives in the U.S., is married,
files a joint income tax return with his or her spouse, and on
certain other factors. Certain domestic entities that are U.S.
Holders may also be required to file Form 8938 if both (i) such
entities are owned at least 80% by an individual who is a U.S.
citizen or U.S. tax resident (or in some cases, by a nonresident
alien who meets certain criteria) or are trusts with beneficiaries
that are such individuals and (ii) more than 50% of their income
consists of certain passive income or more than 50% of their assets
is held for the production of such income. U.S. Holders are urged
to consult with their tax advisors regarding their reporting
obligations, including the requirement to file IRS Form
8938.
Moreover, backup
withholding of U.S. federal income tax, currently at a rate of 24%,
generally will apply to dividends paid on our securities to a U.S.
Holder (other than an exempt recipient) and the proceeds from sales
and other dispositions of our securities by a U.S. Holder (other
than an exempt recipient), in each case who:
●
fails to provide an
accurate taxpayer identification number;
●
is notified by the
IRS that backup withholding is required; or
●
in certain
circumstances, fails to comply with applicable certification
requirements.
69
A
Non-U.S. Holder generally may eliminate the requirement for
information reporting and backup withholding by providing
certification of its foreign status, under penalties of perjury, on
a duly executed applicable IRS Form W-8 or by otherwise
establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any
backup withholding will be allowed as a credit against a U.S.
Holder’s or a Non-U.S. Holder’s U.S. federal income tax
liability and may entitle such holder to a refund, provided that
certain required information is timely furnished to the
IRS.
Holders
are urged to consult their own tax advisors regarding the
application of backup withholding and the availability of and
procedures for obtaining an exemption from backup withholding in
their particular circumstances.
The
following is a summary of the principal Canadian federal income tax
considerations generally applicable to a purchaser of Units or
Pre-Funded Units of the Company pursuant to this prospectus
supplement who, for purposes of the Income Tax Act (Canada) (the
“Canadian Tax Act”) and at all relevant times, is not
resident in Canada nor deemed to be resident in Canada, deals at
arm’s length and is not affiliated with the Company, holds
the Warrants, Pre-Funded Warrants and the Common Shares as capital
property, and does not use or hold and is not deemed to use or hold
the Warrants, Pre-Funded Warrants or Common Shares in or in the
course of carrying on business in Canada (a “Non-resident
Holder”). Special rules which are not discussed in this
summary may apply to a Non-resident Holder that is a financial
institution, as defined in the Canadian Tax Act, or an insurer
carrying on business in Canada and elsewhere.
This
summary is based upon the current provisions of the Canadian Tax
Act and the Canada- U.S. Tax Convention (1980) (the
“Treaty”) both as in force as of the date hereof and
counsel’s understanding of the current administrative
policies and assessing practices published in writing by the Canada
Revenue Agency (the “CRA”). This summary takes into
account all specific proposals to amend the Canadian Tax Act and
the Treaty publicly announced by or on behalf of the Minister of
Finance (Canada) prior to the date hereof (the “Tax
Proposals”) and assumes that the Tax Proposals will be
enacted in the form proposed, although no assurance can be given
that the Tax Proposals will be enacted in their current form or at
all.
This
summary does not otherwise take into account any changes in law or
in the administrative policies or assessing practices of the CRA,
whether by legislative, governmental or judicial decision or
action, nor does it take into account or consider any provincial,
territorial or foreign (including U.S.) income tax considerations,
which considerations may differ significantly from the Canadian
federal income tax considerations discussed in this
summary.
This
summary is not exhaustive of all possible Canadian federal income
tax considerations applicable to a Non-resident Holder in respect
of the securities described herein. The income or other tax
consequences will vary depending on the particular circumstances of
the Non-resident Holder.
This
summary is of a general nature only and is not intended to be, and
should not be interpreted as, legal or tax advice to any
prospective purchaser or holder of the Units or the Pre-Funded
Units and no representation with respect to the Canadian federal
income tax consequences to any such prospective purchaser is made.
Accordingly, prospective purchasers and holders of the Units or
Pre-Funded Units should consult their own tax advisors with respect
to their particular circumstances.
Exercise of Warrants or Pre-Funded Warrants
No gain
or loss will be realized by a Non-resident Holder on the exercise
of a Warrant or a Pre-Funded Warrant. When a Warrant or a
Pre-Funded Warrant is exercised, the Non-resident Holder’s
cost of the Common Share acquired thereby will be the aggregate of
the Non-resident Holder’s adjusted cost base of such Warrant
or Pre-Funded Warrant, respectively, and the exercise price, if
any, paid for the Common Share upon exercise of the Warrant or
Pre-Funded Warrant, as the case may be. The Non-resident
Holder’s adjusted cost base of the Common Share so acquired
will be determined by averaging such cost with the adjusted cost
base to the Non-resident Holder of all Common Shares held by the
Non-resident Holder as capital property immediately prior to such
acquisition.
Dividends on Common Shares
Generally,
dividends paid or credited by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross
amount of such dividends. Such withholding tax rate may be reduced
by an applicable tax treaty entered into by Canada and a
Non-resident Holder’s country of residence. For example,
where applicable, under the Treaty, the withholding tax rate on the
gross amount of dividends paid or credited to a Non-resident Holder
who is eligible for benefits under such treaty, is reduced to 15%
or, in the case of an eligible Non-resident Holder that is a U.S.
company that beneficially owns at least 10% of the voting stock of
the Canadian corporation paying the dividends, to 5% of the gross
amount of such dividends.
70
Disposition of the Warrants, Pre-Funded Warrants and Common
Shares
In
general, a Non-resident Holder will not be subject to Canadian
income tax on capital gains arising on the disposition or deemed
disposition of the Warrants, Pre-Funded Warrants or Common Shares,
unless such Warrants, Pre-Funded Warrants or Common Shares are
“taxable Canadian property” within the meaning of the
Canadian Tax Act. Generally, Warrants, Pre-Funded Warrants or
Common Shares acquired pursuant to this offering will not be
“taxable Canadian property” to a Non-resident Holder if
the Common Shares are listed at that time on a designated stock
exchange for purposes of the Canadian Tax Act (which includes the
TSX and Nasdaq) unless, at any particular time during the 60 month
period immediately preceding the disposition (i) 25% or more of the
issued shares of any class or series of the capital stock of the
Company were owned by: (a) such Non-resident Holder, (b) persons
with whom the Non-resident Holder did not deal at arm’s
length, (c) a partnership in which the Non-resident Holder, or
persons with whom the Non-resident Holder did not deal at
arm’s length, holds a membership interest directly or
indirectly through one or more partnerships, or (d) any combination
thereof, and (ii) the shares derived more than 50% of their fair
market value directly or indirectly from one or any combination of
real or immovable property situated in Canada, “Canadian
resource property”, “timber resource property”
(each as defined under the Canadian Tax Act), or options in respect
of, or interests in, or for civil law rights in such properties,
whether or not such property exists.
Although no
assurance can be given in this regard, the value of the
Company’s Common Shares is not now, and is not expected to be
in the future, derived more than 50% from any of these properties.
Consequently, any gain realized by a Non-resident Holder upon the
disposition of the Warrants, Pre-Funded Warrants or Common Shares
should be exempt from tax under the Canadian Tax Act.
The
consolidated financial statements for the years ended November 30,
2017 and 2016 incorporated by reference in this prospectus from our
Annual Report on Form 20-F for the year ended November 30, 2017,
have been audited by MNP LLP, an independent registered public
accounting firm located at 111 Richmond Street West, Suite 300,
Toronto, ON M5H 2G4, as stated in their report incorporated herein
by reference (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the conditions and
events that raise substantial doubt on the Company’s ability
to continue as a going concern). Such consolidated financial
statements have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and
auditing.
The
consolidated financial statements for the year ended November 30,
2015 incorporated in this prospectus by reference from our Annual
Report on Form 20-F for the year ended November 30, 2017, have been
audited by Deloitte LLP, an independent registered public
accounting firm, as stated in their report (which report expresses
an unqualified opinion and includes an explanatory paragraph
relating to the conditions and events that raise substantial doubt
about the Company’s ability to continue as a going concern),
which is incorporated herein by reference. Such consolidated
financial statements have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
From
time to time, we may be exposed to claims and legal actions in the
normal course of business. As of the date of this prospectus, we
are not aware of any pending or threatened material litigation
claims against us, other than as described below.
In
November 2016, we filed an NDA for our Oxycodone ER product
candidate, relying on the 505(b)(2) regulatory pathway, which
allowed us to reference data from Purdue Pharma L.P.’s file
for its OxyContin®
extended-release oxycodone hydrochloride. Our Oxycodone ER
application was accepted by the FDA for further review in February
2017. We certified to the FDA that we believed that our Oxycodone
ER product candidate would not infringe any of the
OxyContin® patents listed
in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, commonly known as the “Orange
Book”, or that such patents are invalid, and so notified
Purdue Pharma L.P. and the other owners of the subject patents
listed in the Orange Book of such certification. On April 7,
2017, we received notice that Purdue Pharma L.P., Purdue
Pharmaceuticals L.P., The P.F. Laboratories, Inc., or collectively
the Purdue parties, Rhodes Technologies, and Grünenthal GmbH,
or collectively the Purdue litigation plaintiffs or plaintiffs, had
commenced patent infringement proceedings, or the Purdue
litigation, against us in the U.S. District Court for the District
of Delaware (docket number 17-392) in respect of our NDA filing for
Oxycodone ER, alleging that our proposed Oxycodone ER infringes 6
out of the 16 patents associated with the branded product
OxyContin®, or the
OxyContin® patents, listed
in the Orange Book. The complaint seeks injunctive relief as well
as attorneys’ fees and costs and such other and further
relief as the Court may deem just and proper. An answer and
counterclaim have been filed.
71
Subsequent to the
above-noted filing of lawsuit, 4 further such patents were listed
and published in the Orange Book. We then similarly certified to
the FDA concerning such further patents. On March 16, 2018, we
received notice that the Purdue litigation plaintiffs had commenced
further such patent infringement proceedings against us adding the
4 further patents. This lawsuit is also in the District of Delaware
federal court under docket number 18-404.
As a
result of the commencement of the first of these legal proceedings,
the FDA is stayed for 30 months from granting final approval to our
Oxycodone ER product candidate. That time period commenced on
February 24, 2017, when the Purdue litigation plaintiffs
received notice of our certification concerning the patents, and
will expire on August 24, 2019, unless the stay is earlier
terminated by a final declaration of the courts that the patents
are invalid, or are not infringed, or the matter is otherwise
settled among the parties.
On or
about June 26, 2018, the court issued an order to sever 6
“overlapping” patents from the second Purdue case, but
ordered litigation to proceed on the 4 new (2017-issued) patents.
An answer and counterclaim was filed on July 9, 2018. The
existence and publication of additional patents in the Orange Book,
and litigation arising therefrom, is an ordinary and to be expected
occurrence in the course of such litigation.
On
July 6, 2018, the court issued a so-called
“Markman” claim construction ruling on the first case
and the October 22, 2018 trial date remains unchanged. We
believe that we have non-infringement and/or invalidity defenses to
all of the asserted claims of the subject patents in both of the
cases and will vigorously defend against these claims.
On July
24, 2018, the parties to the case mutually agreed to dismiss the
infringement claims related to the Grünenthal ‘060
patent. The Grünenthal ‘060 patent is one of the six
patents included in the original litigation case, however, the
dismissal does not by itself result in a termination of the
30-month litigation stay. Infringement claims related to this
patent have been dismissed without prejudice.
In July
2017, three complaints were filed in the U.S. District Court for
the Southern District of New York asserting claims under the
federal securities laws against us and two of our executive
officers on behalf of a putative class of purchasers of our
securities. In a subsequent order, the Court consolidated the three
actions under the caption Shanawaz
v. Intellipharmaceutics Int’l Inc., et al., No.
1:17-cv-05761 (S.D.N.Y.), appointed lead plaintiffs in the
consolidated action, and approved lead plaintiffs’ selection
of counsel. Lead plaintiffs filed a consolidated amended complaint
on January 29, 2018. In the amended complaint, lead plaintiffs
purport to assert claims on behalf of a putative class consisting
of purchasers of our securities between May 21, 2015 and July 26,
2017. The amended complaint alleges that the defendants violated
Sections 10(b) and 20(a) of the U.S. Exchange Act and Rule 10b-5
promulgated thereunder by making allegedly false and misleading
statements or failing to disclose certain information regarding our
NDA for Oxycodone ER abuse-deterrent oxycodone hydrochloride
extended-release tablets. The complaint seeks, among other
remedies, unspecified damages, attorneys’ fees and other
costs, equitable and/or injunctive relief, and such other relief as
the court may find just and proper. On March 30, 2018, we filed a
motion to dismiss in response to the claim. A response by the
plaintiffs was filed on May 31, 2018. A reply in support of
the motion to dismiss was filed by the Company on June 29,
2018. We intend to vigorously defend against the claims asserted in
the consolidated action.
Certain
legal matters relating to the offering of securities hereunder will
be passed upon on behalf of the Company by Gowling WLG (Canada)
LLP. At the date hereof, the partners and associates of Gowling WLG
(Canada) LLP, as a group, beneficially own, directly or indirectly,
less than 1% of any outstanding securities of the Company or any
associate or affiliate of the Company. Certain legal matters with
respect to this offering, including the validity of the Warrants
and the Pre-Funded Warrants under laws of the State of New York has
been passed on for us by Buchanan Ingersoll & Rooney PC.
Sheppard Mullin Richter & Hampton LLP, New York, New York, is
acting as counsel to the underwriters in this
offering.
The
Canadian transfer agent and registrar for our Common Shares is AST
Trust Company (Canada) located at 1 Toronto Street, Suite 1200
Toronto, ON M5C 2V6. The United States co-transfer agent and
registrar for our Common Shares is American Stock Transfer &
Trust Company LLC located at 6201 15th Avenue, Brooklyn,
NY 11219.
72
WHERE
YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Available Information
We file
reports and other information with the securities commissions and
similar regulatory authorities in each of the provinces and
territories of Canada. These reports and information are available
to the public free of charge on the System for Electronic Document
Analysis and Retrieval, or SEDAR, at www.sedar.com.
We have
filed a registration statement on Form F-1 with the SEC covering
the Units and Pre-Funded Units we are offering by this prospectus.
This prospectus does not include all of the information contained
in the registration statement. You should refer to the registration
statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits filed or documents
incorporated by reference as part of the registration statement for
copies of the actual contract, agreement or other
document.
We are
subject to the information requirements of the U.S. Exchange Act
relating to foreign private issuers and applicable Canadian
securities legislation and, in accordance therewith, file reports
and other information with the SEC and with the securities
regulatory authorities in Canada. As a foreign private issuer, we
are exempt from the rules under the U.S. Exchange Act prescribing
the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16
of the U.S. Exchange Act. In addition, we are not required to
publish financial statements as promptly as U.S.
companies.
Investors may read
any document that we have filed with the SEC at the SEC’s
public reference room in Washington, D.C. Investors may also obtain
copies of those documents from the public reference room of the SEC
at 100 F Street, N.E., Washington, D.C., 20549 by paying a fee.
Investors should call the SEC at 1-800-SEC-0330 or access its
website at www.sec.gov for
further information about the public reference rooms. Investors may
read and download some of the documents we have filed with the
SEC’s Electronic Data Gathering and Retrieval system at
www.sec.gov.
Readers
should rely only on information contained or incorporated by
reference in this prospectus and any applicable prospectus
supplement. We have not authorized anyone to provide the reader
with different information. We are not making an offer of any
securities in any jurisdiction where the offer is not permitted.
Readers should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front of this prospectus, unless otherwise noted herein or as
required by law. It should be assumed that the information
appearing in this prospectus and the documents incorporated herein
by reference are accurate only as of their respective dates. Our
business, financial condition, results of operations and prospects
may have changed since those dates.
Documents Incorporated by Reference
The SEC
allows us to “incorporate by reference” the information
we file with it, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part of
this prospectus. The documents we are incorporating by reference as
of their respective dates of filing are:
(a)
our annual report
on Form 20-F for the fiscal year ended November 30, 2017, which was
filed with the SEC on March 1, 2018, including our audited
consolidated balance sheets as at November 30, 2017 and November
30, 2016, and the consolidated statements of operations and
comprehensive loss, shareholders’ equity (deficiency) and
cash flows for each of the years in the three-year period ended
November 30, 2017;
(b)
our report on
Form 6-K furnished to the SEC on April 16, 2018, including our
notice of 2018 annual and special meeting of shareholders and
management proxy circular dated April 5, 2018, for the annual
meeting of shareholders held on May 15, 2018, which was included as
part of Exhibit 99.2, but excluding Exhibits 99.1, 99.3, 99.4 and
99.5 thereto;
(c)
our report on
Form 6-K furnished to the SEC on July 13, 2018, including
our notice of 2018 special meeting of shareholders and management
proxy circular dated July 6, 2018, for the special meeting of
shareholders to be held on August 15, 2018, which was included
as part of Exhibit 99.2, but excluding Exhibits 99.1,
99.3, 99.4, 99.5 and 99.6 thereto;
(d)
our condensed
unaudited interim consolidated financial statements and notes to
the condensed unaudited interim consolidated financial statements
(i) for the three months ended February 28, 2018, which
were included as Exhibit 99.2 to the report on Form 6-K
furnished to the SEC on April 16, 2018, together with the
Management Discussion and Analysis of Financial Condition and
Results of Operations for the three months ended February 28,
2018, which was included as Exhibit 99.1 to the report on
Form 6-K furnished to the SEC on April 16, 2018 and
(ii) for the three and six months ended May 31, 2018,
which were included as Exhibit 99.2 to the report on
Form 6-K furnished to the SEC on July 16, 2018, together
with the Management Discussion and Analysis of Financial Condition
and Results of Operations for the three and six months ended
May 31, 2018, which was included as Exhibit 99.1 to the
report on Form 6-K furnished to the SEC on July 16, 2018,
and our report on Form 6-K/A furnished to the SEC on July 24, 2018;
and
73
(e)
our reports on Form
6-K furnished to the SEC on March 14, 2018, March 16, 2018, March
19, 2018 (both reports filed on such date), March 20, 2018, March
21, 2018, March 22, 2018, March 29, 2018, April 23, 2018, April 27,
2018, May 8, 2018, May 16, 2018, May 22, 2018, June 8, 2018, August
15, 2018, September 11, 2018 and September 13, 2018.
Copies
of the documents incorporated herein by reference may be obtained
on request without charge from our Chief Financial Officer at 30
Worcester Road, Toronto, Ontario, Canada, M9W 5X2, telephone (416)
798-3001 or on our website at www.intellipharmaceutics.com. The
information on our website is not incorporated by reference into
this prospectus. These documents are also available through the
Internet on SEDAR, which can be accessed online at www.sedar.com,
and on the SEC’s Electronic Data Gathering and Retrieval
System at www.sec.gov.
You
should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different
information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that
the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those
documents.
Any
statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein, or in a
subsequently filed document incorporated by reference herein,
modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute part of this prospectus.
The
Company is incorporated under the CBCA and its principal place of
business is in Canada. Most of the Company’s directors and
officers, and some of the experts named in this prospectus, are
residents of Canada, and all or a substantial portion of their
assets, and a substantial portion of the Company’s assets,
are located outside the United States. The Company has appointed an
agent for service of process in the United States but it may be
difficult for holders of securities who reside in the United States
to effect service within the United States upon the Company or
those directors, officers and experts who are not residents of the
United States. Investors should not assume that a Canadian court
would enforce a judgment of a U.S. court obtained in an action
against the Company or such other persons predicated on the civil
liability provisions of the U.S. federal securities laws or the
securities or “blue sky” laws of any state within the
United States or would enforce, in original actions, liabilities
against the Company or such persons predicated on the U.S. federal
securities laws or any such state securities or “blue
sky” laws. The Company’s Canadian counsel has advised
the Company that a monetary judgment of a U.S. court predicated
solely upon the civil liability provisions of U.S. federal
securities laws would likely be enforceable in Canada if the U.S.
court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a Canadian court
for such purposes. The Company cannot provide assurance that this
will be the case. It is less certain that an action could be
brought in Canada in the first instance on the basis of liability
predicated solely upon such laws.
The
following documents have been or will be filed with the SEC as part
of the registration statement of which this prospectus forms a
part: the documents set out under the heading “Where You Can
Find More Information; Incorporation by Reference”; the forms
of the underwriting agreement, the Warrants and the Pre-Funded
Warrants; the consents of the auditor and legal counsel and the
powers of attorney from the directors and certain officers of the
Company.
INDEMNIFICATION FOR U.S. SECURITIES ACT
LIABILITY
Insofar
as indemnification for liabilities arising under the U.S.
Securities Act may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the U.S. Securities Act and
is therefore unenforceable.
74
INTELLIPHARMACEUTICS INTERNATIONAL INC.
Up to
Units (each Unit contains one Common Share and one Warrant to
purchase One Common Share)
Up to
Pre-Funded Units (each Pre-Funded Unit contains one Pre-Funded
Warrant to purchase one Common Share and one Warrant to purchase
One Common Share)
(Up to
Common Shares Underlying the Warrants) and
(Up to
Common Shares Underlying the Pre-Funded Warrants)
PROSPECTUS
Sole Book-Running Manager
H.C. Wainwright & Co.
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers
Under
Section 124 of the CBCA, a corporation may indemnify a present or
former director or officer of the corporation or another individual
who acts or acted at the corporation’s request as a director
or officer, or an individual acting in a similar capacity, of
another entity, against all costs, charges and expenses, including
an amount paid to settle an action or satisfy a judgment,
reasonably incurred by the individual in respect of any civil,
criminal, administrative, investigative or other proceeding in
which the individual is involved because of that association with
the corporation or other entity. A corporation may not indemnify an
individual unless the individual (i) acted honestly and in
good faith with a view to the best interests of the corporation or,
as the case may be, to the best interests of the other entity for
which the individual acted as director or officer or in a similar
capacity at the corporation’s request, and (ii) in the
case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, had reasonable grounds for
believing that his or her conduct was lawful. Such indemnification
may be made in connection with an action by or on behalf of the
corporation or other entity to procure a judgment in its favor only
with court approval and only if the conditions set forth in
subclauses (i) and (ii) above are met. A director or officer
is entitled to indemnification from the corporation as a matter of
right if he or she was not judged by the court or other competent
authority to have committed any fault or omitted to do anything
that he or she ought to have done and fulfilled the conditions set
forth in subclauses (i) and (ii) above. The corporation
may advance moneys to a director, officer or other individual for
the costs, charges and expenses of a proceeding referred to above.
The individual shall repay the moneys if he or she does not fulfill
the conditions set forth in subclauses (i) and (ii) above
to qualify for indemnification.
Our
By-Law No. 1 (a by-law relating generally to the transaction
of the business and affairs of the Company) provides for the
indemnification of the directors and officers of the Company, and
former directors and officers of the Company, against all costs,
charges and expenses, including an amount paid to settle an action
or satisfy a judgment reasonably incurred by the individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
that association with the Company, subject to certain limitations
in By-Law No. 1 and the limitations in the CBCA.
The
Company may also indemnify other individuals who act or acted at
the Company’s request as a director or officer, or an
individual acting in a similar capacity, of another
entity.
A
policy of directors’ and officers’ liability insurance
is maintained by the Company which insures directors and officers
of the Company for losses as a result of claims based upon their
acts or omissions as directors and officers including liabilities
under securities laws, and also reimburses the Company for payments
made pursuant to the indemnity provisions under the CBCA. The
directors and officers are not required to pay any premium in
respect of this insurance.
Insofar
as indemnification for liabilities arising under the U.S.
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to any charter
provision, by-law, contract, arrangement, statute or otherwise, the
Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the U.S.
Securities Act and is, therefore, unenforceable.
Item 7. Recent Sales of Unregistered Securities
Pursuant to a
placement agent agreement dated October 10, 2017 between the
Company and H.C. Wainwright, in October 2017, we completed a
registered direct offering of 363,636 Common Shares at a price of
$11.00 per share (post reverse-split) for gross proceeds of
approximately $4 million. We also issued to the investors
unregistered warrants to purchase an aggregate of 181,818 Common
Shares at an initial exercise price of $12.50 per share (post
reverse-split). The warrants became exercisable six months
following the October 13, 2017 closing date and will expire 30
months after the date they became exercisable. The Common Shares
(but not the warrants or the Common Shares underlying the warrants)
were offered by us through a prospectus supplement pursuant to our
shelf registration statement on Form F-3 as previously filed and
declared effective by the SEC and the base prospectus contained
therein (Registration Statement No. 333-218297). The warrants
described above were offered in a private placement under Section
4(a)(2) of the U.S. Securities Act, and Regulation D promulgated
thereunder and, along with the Common Shares underlying the
warrants, were not registered under the U.S. Securities Act. We
also issued to the placement agent 18,181 warrants to purchase
Common Shares at an initial exercise price of $13.75 per share
(post reverse-split). The total net proceeds from the offering were
$3.5 million, after deducting offering expenses.
Pursuant to a
placement agent agreement dated March 12, 2018 between the Company
and H.C. Wainwright, on March 16, 2018, we completed a registered
direct offering of 583,333 Common Shares at a price of $6.00 per
share (post reverse-split) for gross proceeds of approximately $3.5
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 291,666 Common Shares at an initial
exercise price of $6.00 per share (post reverse-split). The
warrants are exercisable six months following the March 16, 2018
closing date and will expire 30 months after the date they become
exercisable. The Common Shares (but not the warrants or the Common
Shares underlying the warrants) were offered by us through a
prospectus supplement pursuant to our shelf registration statement
on Form F-3 as previously filed and declared effective by the SEC
and the base prospectus contained therein (Registration Statement
No. 333-218297). The warrants described above were offered in a
private placement under Section 4(a)(2) of the U.S. Securities Act,
and Regulation D promulgated thereunder and, along with the Common
Shares underlying the warrants, have not been registered under the
U.S. Securities Act. We also issued to the placement agent 29,166
warrants to purchase Common Shares at an initial exercise price of
$7.50 per share (post reverse-split), paid $245,000 in cash for
placement agent fees and an aggregate of $75,000 for certain
expenses. The total net proceeds from the offering were
approximately $3 million, after deducting offering
expenses.
Pursuant to a
placement agent agreement dated March 18, 2018 between the Company
and H.C. Wainwright, on March 21, 2018, we completed a registered
direct offering of 300,000 Common Shares at a price of $6.00 per
share (post reverse-split) for gross proceeds of approximately $1.8
million. We also issued to the investors unregistered warrants to
purchase an aggregate of 150,000 Common Shares at an initial
exercise price of $6.00 per share (post reverse-split). The
warrants are exercisable six months following the March 21, 2018
closing date and will expire 30 months after the date they become
exercisable. The Common Shares (but not the warrants or the Common
Shares underlying the warrants) were offered by us through a
prospectus supplement pursuant to our shelf registration statement
on Form F-3 as previously filed and declared effective by the SEC
and the base prospectus contained therein (Registration Statement
No. 333-218297). The warrants described above were offered in a
private placement under Section 4(a)(2) of the U.S. Securities Act,
and Regulation D promulgated thereunder and, along with the Common
Shares underlying the warrants, have not been registered under the
U.S. Securities Act. We also issued to the placement agent 15,000
warrants to purchase Common Shares at an initial exercise price of
$7.50 per share (post reverse-split), paid $126,000 in cash for
placement agent fees and an aggregate of $45,000 for certain
expenses. The total net proceeds from the offering were
approximately $1.6 million, after deducting offering
expenses.
On
September 10, 2018 we completed the private placement financing of
the 2018 Debenture in the principal amount of $500,000. The 2018
Debenture is due to mature on September 1, 2020. The 2018 Debenture
bears interest at a rate of 10% per annum, payable monthly, is
pre-payable at any time at our option, and is convertible into
Common Shares at any time prior to the maturity date at a
conversion price of $3.00 per Common Share (post reverse-split) at
the option of the holder. Drs. Isa and Amina Odidi, who are
directors, executive officers and principal shareholders of our
Company, provided us with the original $500,000 of proceeds for the
2018 Debenture.
Item 8. Exhibits and Financial Statement Schedules
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Exhibit Number
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Description
(a) The following
documents are filed as part of this registration
statement:
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1.1*
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Form of
Underwriting Agreement
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4.26*
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Form of
Pre-Funded Warrant
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4.27*
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Form of
Warrant
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4.28*
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Form of
Underwriter Warrant
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--------------
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*
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To be
filed by amendment or as an exhibit to a report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, including
any Report of Foreign Private Issuer on Form 6-K, and incorporated
herein by reference if necessary or required by the
transaction.
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(†)
Confidential
treatment has been granted for certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and
Exchange Commission.
Item 9. Undertakings
a)
The undersigned
registrant hereby undertakes:
(1)
To file, during any
period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i)
To include any
prospectus required by Section 10(a)(3) of the U.S. Securities Act
of 1933;
(ii)
To reflect in the
prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii)
To include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration
statement.
(2)
That, for the
purpose of determining any liability under the U.S. Securities Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide
offering thereof.
(3)
To remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4)
To file a
post-effective amendment to the registration statement to include
any financial statements required by Item 8.A. of Form 20-F at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the U.S. Securities Act need not be furnished,
provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the U.S. Securities Act
or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
(5)
That, for the
purpose of determining liability under the U.S. Securities Act to
any purchaser:
(i)
If the registrant
is relying on Rule 430B:
A.
Each prospectus
filed by the registrant pursuant to Rule 424(b)(3) shall be deemed
to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration
statement; and
B.
Each prospectus
required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii),
or (x) for the purpose of providing the information required by
section 10(a) of the U.S. Securities Act shall be deemed to be part
of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness
or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that
date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the
securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof.
Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date; or
(ii)
If the registrant
is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6)
That, for the
purpose of determining liability of the registrant under the U.S.
Securities Act to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
(i)
Any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule
424;
(ii)
Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any
other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
b)
The undersigned
registrant hereby undertakes that, for purposes of determining any
liability under the U.S. Securities Act, each filing of the
registrant’s annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan’s annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
c)
Insofar as
indemnification for liabilities arising under the U.S. Securities
Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the U.S. Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the U.S. Securities and will be governed by the final adjudication
of such issue.
d)
The undersigned
registrant hereby undertakes that:
(1)
For purposes of
determining any liability under the U.S. Securities Act, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b) (1) or (4) or 497(h) under the U.S. Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2)
For the purpose of
determining any liability under the U.S. Securities Act, each
post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form F-1 and has
duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of
Toronto, Province of Ontario, Canada, on September 20,
2018.
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INTELLIPHARMACEUTICS INTERNATIONAL INC.
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By:
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/s/ Amina
Odidi
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Dr.
Amina Odidi
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President,
Chief Operating Officer and Director
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POWER OF ATTORNEY
Each
person whose signature appears below hereby authorizes each of Dr.
Isa Odidi and Andrew Patient or either of them as his true and
lawful attorney-in-fact with full power of substitution to execute
in the name and on behalf of each person, individually and in each
capacity stated below, and to file, any and all amendments to this
registration statement, including any and all post-effective
amendments thereto.
Pursuant to the
requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Isa
Odidi
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Chairman
of the Board of Directors
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September
20, 2018
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Dr. Isa
Odidi
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Chief
Executive Officer and Co-Chief Scientific Officer (Principal
Executive Officer)
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/s/ Andrew
Patient
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Chief
Financial Officer
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September
20, 2018
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Andrew
Patient
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(Principal
Financial and Accounting
Officer)
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/s/ Amina
Odidi
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President,
Chief Operating Officer, Co-Chief Scientific
Officer and Director
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September
20, 2018
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Dr.
Amina Odidi
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/s/ Kenneth
Keirstead
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Director
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September
20, 2018
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Kenneth
Keirstead
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/s/ Bahadur
Madhani
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Director
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September
20, 2018
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Bahadur
Madhani
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/s/ Eldon
Smith
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Director
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September
20, 2018
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Eldon
R. Smith
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/s/ Shawn
Graham
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Director
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September
20, 2018
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Shawn
Graham
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AUTHORIZED REPRESENTATIVE
Pursuant to the
requirements of Section 6(a) of the Securities Act of 1933, as
amended, the undersigned has signed this Registration Statement,
solely in the capacity of the duly authorized representative of
Intellipharmaceutics International Inc. in the United States, on
September 20, 2018.
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VASOGEN INC.
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By:
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/s/ Amina
Odidi
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Name:
Dr. Amina Odidi
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Title:
President, Chief Operating Officer, Co-Chief
Scientific Officer and Director
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