Filed
Pursuant to Rule 424(b)(5)
Registration No. 333-218297
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 17, 2017)
INTELLIPHARMACEUTICS INTERNATIONAL INC.
3,636,364 Common Shares
We are
offering 3,636,364 common shares, no par value. In a concurrent
private placement, we are also selling to purchasers of our common
shares in this offering, warrants to purchase up to 1,818,182
common shares which represent 50% of
the number of our common shares being purchased in this offering.
The warrants and the common shares issuable upon the exercise of
the warrants are not being registered under the Securities Act of
1933, as amended, or the Securities Act, are not being offered
pursuant to this prospectus supplement and the accompanying
prospectus and are being offered pursuant to the exemption provided
in Section 4(a)(2) under the Securities Act and Rule 506(b)
promulgated thereunder.
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
October 11, 2017, the closing sale price of our common shares as
reported by the TSX and NASDAQ was Cdn$1.35 and $1.08,
respectively. On October 11, 2017, the aggregate market value of
our outstanding common shares held by non-affiliates was
$29,020,743, based on our 31,073,151 outstanding common shares as
of such date, of which 25,235,429 common shares were held by
non-affiliates, and a per share price of $1.15, the closing sale
price of our common shares on October 10, 2017 (which is the
highest closing sale price of our common shares in the last 60
days). We have sold or offered securities having an aggregate
market value of approximately $4,951,860 pursuant to General
Instruction I.B.5 of Form F-3 during the prior twelve calendar
month period that ends on and includes the date of this
prospectus supplement.
Investing
in our securities involves a high degree of risk. You should review
carefully the risks and uncertainties described under the heading
“Risk Factors” contained in this prospectus supplement
beginning on page S-3, and under similar headings in the other
documents that are incorporated by reference into this prospectus
supplement.
We have
retained H.C. Wainwright & Co., LLC, or Wainwright or the
placement agent, to act as our exclusive placement agent. The
placement agent has agreed to use its “reasonable best
efforts” to arrange for the sale of the common shares offered
by this prospectus supplement. The placement agent has no
obligation to buy any of the common shares from us or to arrange
for the purchase or sale of any specific number or dollar amount of
the common shares. There is no required minimum number of common
shares that must be sold as a condition to completion of this
offering. We have agreed to pay the placement agent fees set
forth in the table below, which assumes that we sell all of the
common shares we are offering.
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PER
SHARE
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TOTAL
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Public offering
price
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$1.100
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$4,000,000.40
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Placement agent
fees(1)
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$0.077
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$280,000.02
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Proceeds to us
before expenses(2)
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$1.023
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$3,720,000.38
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i
(1)
In addition, we
have agreed to reimburse the placement agent for offering expenses
in the non-accountable sum of $25,000 and for legal fees and
expenses up to $40,000. We have also agreed to issue to the
placement agent warrants in an amount equal to 5% of the number of
shares placed in this offering and issued on closing. See
“Plan of Distribution” on page S-26 of this prospectus
supplement for more information on the placement agent’s
compensation.
(2)
Does not include
proceeds from the exercise of the warrants in cash, if any. We
estimate total expenses of this offering, excluding the placement
agent fees, will be approximately $264,626.
The
offering price of the common shares will be payable in U.S.
dollars. All of the net proceeds of this offering will be paid to
us in U.S. dollars.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus supplement.
Any representation to the contrary is a criminal
offense.
We
expect to deliver the securities being offered pursuant to this
prospectus supplement on or about October 13, 2017.
H.C. Wainwright & Co.
Prospectus Supplement dated October 11, 2017
ii
TABLE OF CONTENTS
Prospectus Supplement
iii
PROSPECTUS
iv
About this Prospectus Supplement
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement, the
accompanying prospectus and in any free writing prospectus that we
have authorized for use in connection with this offering. We have
not, and the placement agent has not, authorized anyone to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it.
We are not, and the placement agent is not, making an offer to sell
common shares or seeking offers to buy common shares in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information in this prospectus supplement, the
accompanying prospectus, the documents incorporated by reference in
this prospectus supplement and the accompanying prospectus, and in
any free writing prospectus that we have authorized for use in
connection with this offering, is accurate only as of the date of
those respective documents. Our business, financial condition,
results of operations and prospects may have changed since those
dates. You should read this prospectus supplement, the accompanying
prospectus, the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus, and any free
writing prospectus that we have authorized for use in connection
with this offering, in their entirety before making an investment
decision. You should also read and consider the information in the
documents to which we have referred you in the section of this
prospectus supplement entitled “Where You Can Find More
Information; Incorporation by Reference” and the section of
the accompanying prospectus entitled “Where You Can Find More
Information; Incorporation by Reference.” In this prospectus
supplement, the “Company,”
“Intellipharmaceutics,” “we,”
“us” and “our” refer to
Intellipharmaceutics International Inc. and its
subsidiaries.
This
prospectus supplement and the accompanying prospectus form part of
a registration statement on Form F-3 that we filed with the
Securities and Exchange Commission, or SEC, using a
“shelf” registration process. This document contains
two parts. The first part consists of this prospectus supplement,
which provides you with specific information about this offering.
The second part, the accompanying prospectus, provides more general
information, some of which may not apply to this offering.
Generally, when we refer only to the “prospectus,” we
are referring to both parts combined. This prospectus supplement
may add, update or change information contained in the accompanying
prospectus. To the extent that any statement we make in this
prospectus supplement is inconsistent with statements made in the
accompanying prospectus or any previously filed documents
incorporated by reference herein or therein, the statements made in
this prospectus supplement will be deemed to modify or supersede
those made in the accompanying prospectus and such documents
incorporated by reference herein and therein.
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
supplement or the accompanying 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.$” or “dollars” are
to U.S. dollars, and all references to “Cdn$” are to
the lawful currency of Canada. In this prospectus supplement, where
applicable, and unless otherwise indicated, amounts are converted
from U.S. dollars to Canadian dollars and vice versa by applying
the closing rate of exchange of the Bank of Canada on October 11,
2017. See “Exchange Rate Information.” Except as
otherwise indicated, our consolidated financial statements and
other information are presented in U.S. dollars.
In this
prospectus supplement, 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.
Any
reference in this prospectus supplement 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, 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.
v
In this
prospectus supplement, the accompanying prospectus 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.
This
prospectus supplement 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 supplement by any
person in any jurisdiction in which it is unlawful for such person
to make such an offer or solicitation.
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 supplement, all
rights to such trademarks are nevertheless reserved. Unless
otherwise noted, other trademarks used in this prospectus
supplement are the property of their respective
holders.
vi
SUMMARY
This summary highlights information contained elsewhere in this
prospectus supplement 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 the
entire prospectus supplement and accompanying prospectus carefully,
including the section entitled “Risk Factors” beginning
on page S-3 of this prospectus supplement and the section entitled
“Risks Factors” in our annual report on Form 20-F for
the fiscal year ended November 30, 2016, and all other information
included or incorporated herein by reference in this prospectus
supplement and the accompanying 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 the
Company’s oxycodone hydrochloride extended release tablets
(previously referred to as Rexista™)(“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.
Our Corporate Information
We were
incorporated under the Canada Business Corporations Act 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 supplement and is not a part of this prospectus
supplement. Our common shares are listed for trading on the TSX and
on NASDAQ under the symbol “IPCI”.
Recent Developments
NASDAQ Compliance
In
September 2017, the Company announced that it has received written
notification (the "Notification Letter") from The NASDAQ Stock
Market LLC ("Nasdaq") notifying the Company that it is not in
compliance with the minimum market value of listed securities
requirement set forth in Nasdaq Rules for continued listing on The
Nasdaq Capital Market. The Notification Letter does not impact the
Company's listing on The Nasdaq Capital Market at this time. Nasdaq
Listing Rule 5550(b)(2) requires listed securities to maintain a
minimum market value of US $35.0 million, and Listing Rule
5810(c)(3)(C) provides that 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 the
Company's common shares for the 30 consecutive business days from
August 8, 2017, the Company no longer meets the minimum market
value of listed securities requirement. In accordance with Nasdaq
Listing Rule 5810(c)(3)(C), the Company has been provided
180
calendar days, or
until March 19, 2018, to regain compliance with Nasdaq Listing Rule
5550(b)(2). To regain compliance, the Company's common shares must
have a market value of at least US $35.0 million for a minimum of
10 consecutive business days. In the event the Company does not
regain compliance by March 19, 2018, the Company may be eligible
for additional time to regain compliance. If not, our securities
may be delisted from NASDAQ.
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The Offering
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Common shares we are offering:
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3,636,364
shares
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Public offering price:
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$1.10
per share
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Common shares outstanding before this offering:
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31,073,151
shares
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Common shares to be outstanding after this offering:
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34,709,515
shares
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Concurrent private placement:
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In a
concurrent private placement, we are selling to the purchasers of
common shares in this offering, warrants to purchase one-half the
number of common shares purchased by such purchasers in this
offering, or up to 1,818,182 of our common shares. The warrants
will be exercisable six months after issuance at an exercise price
of $1.25 per share and will expire on the 30 month anniversary of
the initial exercise date. The warrants and the common shares
issuable upon the exercise of the warrants, are not being offered
pursuant to this prospectus supplement and the accompanying
prospectus and are being offered pursuant to the exemption provided
in Section 4(a)(2) under the Securities Act and Rule 506(b)
promulgated thereunder. See “Concurrent Private Placement
Transaction.”
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Use of proceeds:
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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.
See
“Use of Proceeds” beginning on page S-10.
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NASDAQ and TSX symbol:
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IPCI
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Risk Factors:
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Investing
in our securities involves substantial risks. You should carefully
review and consider the “Risk Factors” section of this
prospectus supplement for a discussion of factors to consider
before deciding to invest in our securities.
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The
number of common shares shown above to be outstanding after this
offering is based on 31,073,151 shares outstanding as of October
11, 2017 and excludes, as of that date:
●
an aggregate of
5,345,305 common shares issuable upon the exercise of outstanding
options, with a weighted average exercise price of U.S.$3.45 per
common share;
●
up to 525,950
additional common shares that have been reserved for issuance in
connection with future grants under our stock option
plan;
S-2
●
an aggregate of
1,979,797 common shares issuable upon the exercise of outstanding
common share purchase warrants, with a weighted average exercise
price of U.S.$2.03 per common share;
●
an aggregate of
94,131 deferred share units;
●
an aggregate of
450,000 common shares issuable upon the conversion of an unsecured
convertible debenture held by Drs. Isa and Amina Odidi, our
principal stockholders, directors and executive officers, or the
Debenture;
●
an aggregate of
1,818,182 common shares issuable upon the exercise of the warrants
to be issued in the concurrent private placement. See
“Concurrent Private Placement Transaction;”
and
●
an aggregate of
181,818 common shares issuable upon the exercise of the warrants to
be issued to the placement agent as described in “Plan of
Distribution.”
RISK
FACTORS
Our past experience may not be indicative of future performance,
and as noted elsewhere in this prospectus supplement and documents
incorporated by reference into this prospectus supplement, 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 supplement and
the accompanying prospectus and documents incorporated by reference
into this prospectus supplement, 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.
The “Risk Factors” beginning on page 6 of the
accompanying prospectus are incorporated by reference in this
prospectus supplement.
Risks Relating to this Offering
Our management will have broad discretion in allocating the net
proceeds of this offering, and may use the proceeds in ways in
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 per share
of the common shares you purchase.
Because
the public offering price per common share is substantially higher
than the book value per share of our common shares, you will suffer
substantial dilution in the net tangible book value of the common
shares you purchase in this offering. Based on the public offering
price of $1.10 per share, if you purchase shares in this offering,
you will suffer immediate and substantial dilution of approximately
$1.02 per share in the net tangible book value of the common shares
you acquire. See “Dilution” below for a more detailed
discussion of the dilution you will incur if you purchase
securities 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.
S-3
There can be no assurance that our common shares will continue to
trade on the Nasdaq Capital Market or another national securities
exchange.
From
and after September 20, 2017, we have failed to meet the market
value standard of the continued listing standards for NASDAQ
Capital Market companies. There can be no assurance that we will be
able to meet the market value or any of the other NASDAQ Capital
Market listing standards. If we are unable to do so before March
19, 2018, and if we are unable to regain compliance with the
standards within the time frame set by NASDAQ, our common shares
may be delisted. There can be no assurance that we will be able to
comply with all applicable NASDAQ Capital Market continued listing
standards. If we are unable to do so, our common shares may no
longer be listed on NASDAQ Capital Market or another national
securities exchange and the liquidity and market price of our
common shares may be adversely affected.
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 listed on NASDAQ Capital Market, 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 Capital Market 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.
There may be future sales or other dilution of our equity, which
may adversely affect the market price of our common
shares.
We are
generally not restricted from issuing additional common shares,
including any securities that are convertible into or exchangeable
for, or that represent the right to receive, common 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, common
shares after this offering or the perception that such sales could
occur.
Future sales of our common shares may cause the prevailing market
price of our common shares to decrease.
We have
registered a substantial number of outstanding common shares and
common shares that are issuable upon the exercise of outstanding
warrants. If the holders of our registered common shares choose to
sell such shares in the public market or if holders of our warrants
exercise their purchase rights 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 for our common shares may decline. The sale
of shares issued upon the exercise of our warrants (and options)
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.
S-4
Risks Relating to our Company
Our
business is capital intensive and requires significant investment
to conduct R&D, 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 R&D, clinical and regulatory activities necessary
to bring our products to market and to establish commercial
manufacturing, marketing and sales capabilities. As of August 31,
2017, we had a cash balance of $0.7 million. As of October 11,
2017, our cash balance was $0.3 million. We currently expect to
satisfy our operating cash requirements until December 2017 from
cash on hand and quarterly profit share payments from Par
Pharmaceutical, Inc., or Par, and Mallinckrodt LLC, or
Mallinckrodt, supplemented by, if necessary, utilization of the
equity markets if available. Should our marketing and distribution
partner, Mallinckrodt, continue to grow sales of our generic
Seroquel XR® at anticipated rates, then we expect to be cash
flow positive around the middle of fiscal 2018. Failing this, the
Company may need to obtain additional funding prior to that time as
we further the development of our product candidates and if we
accelerate our product commercialization activities. There can be
no assurance as to when or if Par will launch the remaining two
strengths of its generic Focalin XR® and, if launched, whether
they will be successfully commercialized, or if sales of generic
Seroquel XR® will continue to grow at expected levels. If
necessary, we expect to utilize the equity markets, if available,
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. Although there can be no assurances,
such capital may come from revenues from the sales of our generic
Focalin XR® capsules, from sales of our generic Seroquel
XR® tablets, from proceeds of this offering and from potential
partnering opportunities for approved products, or from, if
necessary, utilization of the equity markets if available. Other
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. 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. 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 and 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 (as
defined below) 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 our not taking
advantage of business opportunities, in the termination or delay of
clinical trials or our 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 August 31, 2017 and had
an accumulated deficit of $69,362,523 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. While our commercial prospects have improved and
our revenue base is growing, there can be no assurance that we will
ever be able to achieve or sustain profitability or positive cash
flow. Our ultimate success will depend on how many of 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, or that we will reach the level of sales and revenues
necessary to achieve and sustain profitability.
S-5
Approvals
for our product candidates may be delayed or become more difficult
to obtain if the FDA institutes changes to 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 Fee User 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 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 year 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.
We
operate in a highly litigious environment.
From
time to time, we are subject to legal proceedings. As of the date
of this prospectus supplement, we are not aware of any pending or
threatened material litigation claims against us, other than
as described below and under the caption “Legal
Proceedings” in this prospectus supplement. 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.
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.
Our NDA
seeking authorization to market our Oxycodone ER product candidate
(abuse-deterrent oxycodone hydrochloride extended release tablets)
in the 10, 15, 20, 30, 40, 60 and 80 mg strengths was filed under
Paragraph IV of the Hatch-Waxman Act, as amended. In connection
with the NDA for our Oxycodone ER product candidate, we relied on
the 505(b)(2) regulatory pathway and referenced 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 sixteen (16) patents associated with the
branded product Oxycontin®, or the Oxycontin® patents,
listed in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, commonly known as the Orange Book, or 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 in respect of our NDA filing for Oxycodone ER, alleging
that Oxycodone ER infringes six (6) out of the sixteen (16)
patents. 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.
S-6
As a
result of the commencement 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. A trial date
for the Purdue litigation has been set for October 22, 2018. We are
confident that we do not infringe the subject patents, and will
vigorously defend against these claims.
Brand-name
pharmaceutical manufacturers routinely bring patent infringement
litigation against ANDA applicants seeking FDA approval to
manufacture and market generic forms of their branded products. We
are routinely subject to patent litigation that can delay or
prevent our commercialization of products, force us to incur
substantial expense to defend, and expose us to substantial
liability.
In July
2017, the Company announced a purported class action complaint was
filed in the U.S. District Court for the Southern District of New
York (the “S.D.N.Y Court”) (No. 1:17-cv-05761) by Shawn
Shanawaz on behalf of himself and all others similarly situated
against the Company and two of its executive officers. The
complaint alleges that the Company and the executive officers
violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, and Rule 10b-5 promulgated
thereunder by making allegedly false and misleading statements or
failing to disclose certain information regarding the
Company’s 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. Subsequently in
August 2017, two additional substantially similar (in substance and
relief sought) actions were filed by Guy Braverman (No.
1:17-cv-06045) and David Ducharme (No. 1:17-cv-06621) in the
S.D.N.Y. Court. The Company anticipates that all three actions will
be consolidated into one complaint. The Company and its management
intend to vigorously defend against the allegations set forth in
the complaints.
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.
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.
S-7
We are a defendant in purported securities class-action litigation
matters 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 purported securities class action litigation matters
as described under the heading “Legal Proceedings.” The
defense of these litigation matters 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
these litigation matters, or any amounts paid to settle these
litigation matters could require that we make significant payments.
In addition, we may in the future be the target of other securities
class actions or similar litigation. See “Legal
Proceedings.”
Our
significant shareholders have the ability to exercise significant
influence over certain corporate actions.
Our
principal shareholders, Drs. Amina and Isa Odidi, our President and
Chief Operating Officer and our Chairman and Chief Executive
Officer, respectively, and Odidi Holdings Inc., a privately-held
company controlled by Drs. Amina and Isa Odidi, owned in the
aggregate approximately 18.6% of our issued and outstanding common
shares as of October 11, 2017 (and collectively beneficially owned
in the aggregate approximately 29.5% of our common shares,
including common shares issuable upon the exercise of outstanding
options and the conversion of the convertible Debenture in respect
of the loan to us in the original principal amount of $1,500,000 by
Drs. Isa and Amina Odidi, of which $1,350,000 remains outstanding,
that are exercisable or convertible within 60 days of the date
hereof). As a result, the principal shareholders have the ability
to exercise significant influence over all matters submitted to our
shareholders for approval whether subject to approval by a majority
of holders of our common shares or subject to a class vote or
special resolution requiring the approval of 66⅔% of the
votes cast by holders of our common shares, in person or by
proxy.
A
large number of our common shares could be sold in the market in
the near future, which could depress our stock
price.
As of
October 11, 2017, we had approximately 31,073,151 common shares
outstanding. In addition, a substantial portion of our common
shares are currently freely trading without restriction under the
Securities Act, having been registered for resale or held by their
holders for over one year and are eligible for sale under Rule
144. In addition, in November 2013, we established our
at-the-market equity program pursuant to which we originally could,
from time to time, sell up to 5,305,484 of our common shares for up
to an aggregate of $16.8 million. As of October 11, 2017, we have
issued and sold 4,740,350 common shares with an aggregate offering
price of $13,872,929 under the at-the-market program. As a result
of prior sales of our common shares under the equity distribution
agreement, we may offer and sell up to 565,134 additional common
shares (or such lower number of common shares as may then be
permitted under applicable exchange rules and securities laws and
regulations). Assuming the sale of 565,134 common shares at a public offering
price of $1.08 per share, the last reported sale price of our
common shares on NASDAQ on October 11, 2017, the aggregate offering
price of the common shares would be approximately $0.6
million. We are not
required to sell shares under the equity distribution agreement.
There can be no assurance that any additional shares will be sold
under our at-the-market program. We have agreed, pursuant to the
securities purchase agreements entered
into in connection with this offering, not to issue, subject to
certain exceptions, common shares for a period of 60 days after the
closing of this offering.
On
October 22, 2009, IntelliPharmaCeutics Ltd., or IPC Ltd., and
Vasogen Inc., or Vasogen, completed a plan of arrangement and
merger, or the IPC Arrangement Agreement, resulting in the
formation of the Company. Our shareholders who received shares
under the IPC Arrangement Agreement who were not deemed
“affiliates” of either Vasogen, IPC Ltd., or us prior
to the IPC Arrangement Agreement were able to resell the common
shares that they received without restriction under the U.S.
Securities Act. The common shares received by an
“affiliate” after the IPC Arrangement Agreement or who
were “affiliates” of either Vasogen, IPC Ltd., or us
prior to the IPC Arrangement Agreement are subject to certain
restrictions on resale under Rule 144.
As of
October 11, 2017, there are currently common shares issuable upon
the exercise of outstanding options and warrants and the conversion
of an outstanding convertible Debenture for an aggregate of
approximately 7,775,102 common shares. To the extent any of our
options and warrants are exercised and the convertible Debenture is
converted, a shareholder’s percentage ownership will be
diluted and our stock price could be further adversely affected.
Moreover, as the underlying shares are sold, the market price could
drop significantly if the holders of these restricted shares sell
them or if the market perceives that the holders intend to sell
these shares.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING INFORMATION
Certain
statements included and incorporated by reference in this
prospectus supplement 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 and concurrent private
placement, the expected gross proceeds, the expected use of
proceeds and the expected closing of the offering, plans, goals and
milestones, status of developments or expenditures relating to our
business, plans to fund our current activities, and
S-8
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
“may,” “will,” “should,”
“expects,” “plans,” “plans to,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“confident,” “prospects,”
“potential,” “continue,”
“intends,” “look-forward,”
“could,” 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. 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
any other offering of our securities, the potential dilutive
effects of 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, 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, 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 for our drug delivery technologies, products
and product candidates, 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, 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 Focalin XR® product 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,
changes in U.S. federal income tax laws currently being considered,
including, but not limited to, the U.S. changing the method by
which foreign income is taxed and resulting changes to the passive
foreign investment company laws and regulations which may impact
our shareholders, 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 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 targeting common forms of abuse (oral,
intra-nasal and intravenous), risks or uncertainties related to our
ability to implement and execute a plan to regain compliance with
NASDAQ continued listing standards, 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 supplement and the
accompanying 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.
S-9
USE OF
PROCEEDS
We
estimate that our net proceeds from this offering will be
approximately $3.4 million, after deducting the placement agent
fees and estimated offering expenses payable by us. We will receive
additional proceeds from any cash exercise of the warrants offered
by this prospectus supplement. We cannot provide any assurance as
to the amount or timing of receipt of any such additional proceeds,
and it is possible that these warrants may expire and never be
exercised.
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. The amounts and timing of our
use of proceeds will vary depending on a number of factors,
including the amount of cash generated or used by our operations,
and the rate of growth, if any, of our business. As a result, we
will retain broad discretion in the allocation of the net proceeds
of this offering.
EXCHANGE RATE INFORMATION
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.
|
|
|
|
Ten months ended
|
|
|
|
Years
ended November 30,
|
|||||||||
|
|
|
|
September
30,2017
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
|
High
|
|
|
Cdn$1.3753
|
|
|
|
Cdn$1.4559
|
|
|
|
Cdn$1.3418
|
|
|
|
Cdn$1.1440
|
|
|
Low
|
|
|
Cdn$1.2128
|
|
|
|
Cdn$1.2536
|
|
|
|
Cdn$1.1328
|
|
|
|
Cdn$1.0587
|
|
|
Average
for the Period
|
|
|
Cdn$1.3205
|
|
|
|
Cdn$1.3276
|
|
|
|
Cdn$1.2603
|
|
|
|
Cdn$1.0971
|
|
|
End of
Period
|
|
|
Cdn$1.2480
|
|
|
|
Cdn$1.3429
|
|
|
|
Cdn$1.3353
|
|
|
|
Cdn$1.1440
|
|
On
October 11, 2017, 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$1.2498 or Cdn$1.00=U.S.$0.8001
S-10
DILUTION
Our net
tangible book deficit as of August 31, 2017 was approximately
$792,771 or $0.03 per common share. Net tangible book deficit per
common share is determined by dividing our total tangible assets,
less total liabilities, by the number of common shares outstanding
as of August 31, 2017. Dilution in net tangible book value per
common share represents the difference between the amount per share
paid by purchasers of common shares in this offering and the net
tangible book deficit per common share immediately after this
offering.
After
giving effect to the sale of 3,636,364 common shares in this
offering at the public offering price of $1.10 per share and after
deducting the placement agent fees and estimated offering expenses
payable by us, our as adjusted net tangible book value as of August
31, 2017 would have been approximately $2.7 million, or $0.08 per
common share. This represents an immediate increase in net tangible
book value of $0.11 per common share to existing shareholders and
immediate dilution in net tangible book value of $1.02 per common
share to new investors purchasing common shares in this offering.
The following table illustrates this dilution on a per common share
basis:
|
Public offering
price per common share
|
|
$1.10
|
|
Net tangible book
deficit per common share as of August 31, 2017
|
$(0.03)
|
|
|
Increase per
common share attributable to new investors
|
$0.11
|
|
|
As adjusted net
tangible book value per common share after this
offering
|
|
$0.08
|
|
Dilution per
common share to new investors
|
|
$1.02
|
The
number of common shares to be outstanding after this offering is
based on 31,023,152 common shares outstanding as of August 31, 2017
does not include an aggregate of 450,000 common shares issuable
upon the conversion of the Debenture held by Drs. Isa and Amina
Odidi, our principal stockholders, directors and executive
officers, and also excludes, as of that date:
●
an aggregate of
5,383,305 common shares issuable upon the exercise of outstanding
options, with a weighted average exercise price of U.S.$3.45 per
common share;
●
up to 482,950
additional common shares that have been reserved for issuance in
connection with future grants under our stock option
plan;
●
an aggregate of
1,979,797 common shares issuable upon the exercise of outstanding
common share purchase warrants, with a weighted average exercise
price of U.S.$2.03 per common share;
●
an aggregate of
85,950 deferred share units;
●
an aggregate of
1,818,182 common shares issuable upon the exercise of the warrants
to be issued in the concurrent private placement, as described
below under “Concurrent Private Placement Transaction;”
and
●
an aggregate of
181,818 common shares issuable upon the exercise of the warrants to
be issued to the placement agent as described in “Plan of
Distribution” with an exercise price of $1.38.
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
following table sets forth our capitalization as of August 31,
2017:
S-11
●
on an actual basis,
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 as
discussed in “Use of Proceeds”.
This
capitalization table should be read in conjunction with our annual
report on Form 20-F for the fiscal year ended November 30, 2016,
and our report on Form 6-K furnished to the SEC on October 10,
2017, including our condensed unaudited interim consolidated
financial statements and notes to the condensed unaudited interim
consolidated financial statements for the nine months ended August
31, 2017, and the other financial information included and
incorporated by reference in this prospectus
supplement.
As of
August 31, 2017, the Company has cash totaling
$735,156.
|
|
As of August 31, 2017
|
|
|
|
Actual
|
As Adjusted
|
|
Short term
debt-due to related parties
|
$1,363,750
|
$1,363,750
|
|
|
|
|
|
Common shares,
unlimited amount authorized, 31,023,152 issued and
outstanding:
|
$32,460,925
|
$35,916,299
|
|
|
$33,824,675
|
$37,280,049
|
DESCRIPTION OF SHARE
CAPITAL
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. At October 11, 2017, there
were 31,073,151 common shares and no preference shares issued and
outstanding.
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. 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
October 11, 2017, an aggregate of 1,979,797 common shares were
issuable upon the exercise of outstanding common share purchase
warrants, with a weighted average exercise price of U.S.$2.03 per
common share.
S-12
Options
As of
October 11, 2017, there were 5,345,305 common shares issuable upon
the exercise of outstanding options. The weighted average exercise
price of these options is U.S.$3.45 per common share. As at October
11, 2017, up to 525,950 additional common shares were reserved for
issuance under our option plan.
Convertible Debenture
On
January 10, 2013, we completed a private placement financing of an
unsecured Debenture in the original principal amount of $1.5
million. The Debenture was originally due to mature on January 1,
2015, but effective October 1, 2014, the maturity date was extended
to July 1, 2015; effective June 29, 2015, the July 1, 2015 maturity
date was extended to January 1, 2016; and effective as of December
8, 2015, the maturity date was extended to July 1, 2016. Effective
May 26, 2016, the maturity date of the Debenture was further
extended to December 1, 2016. The Debenture bears interest at a
rate of 12% per annum, payable monthly, is pre-payable at any time
at our option, and was convertible at any time into 500,000 common
shares at a conversion price of $3.00 per common share at the
option of the holder. Drs. Isa and Amina Odidi, our principal
stockholders, directors and executive officers provided us with the
$1.5 million of the proceeds for the Debenture. Effective December
1, 2016, the maturity date for the 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 Debenture is convertible at any time into 450,000 common shares
at a conversion price of $3.00 per common share at the option of
the holder. Effective March 28, 2017, the maturity date of the
Debenture was extended to October 1, 2017. Effective September 28,
2017, the maturity date of the Debenture was further extended to
October 1, 2018. The Company currently expects to repay the current
net amount of $1,350,000 on or about October 1, 2018, if the
Company then has cash available.
Deferred Share Units
At
October 11, 2017, there were 94,131 deferred share units, or DSUs,
issued to one non-management director. At October 11, 2017, 15,869
additional DSUs are reserved for issuance under our DSU
plan.
Restricted Share Units
At
October 11, 2017, there were no restricted share units, or RSUs,
issued and outstanding. At the date of this prospectus supplement,
330,000 RSUs are reserved for issuance under our RSU
Plan.
Registration Rights
We
conducted a private placement issuance 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(2) and/or Regulation S thereof and such 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 one percent (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.
S-13
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.
TRADING PRICE AND
VOLUME
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.
The
following table sets forth the monthly trading history for the
preceding 12-month period, the reported high, low and closing
prices (in Canadian dollars) and total volume traded of our common
shares on the TSX and reported high, low and closing prices (in
U.S. dollars) and total volume of our common shares traded on
NASDAQ.
|
|
TSX
|
NASDAQ
|
||||||
|
|
(Cdn$
per share)
|
(U.S.$
per share)
|
||||||
|
Date
|
High
|
Low
|
Close
|
Volume
Traded
|
High
|
Low
|
Close
|
Volume
Traded
|
|
Oct-16
|
$4.40
|
$2.75
|
$3.74
|
1,058,000
|
$3.33
|
$2.08
|
$2.77
|
19,519,200
|
|
Nov-16
|
$4.50
|
$3.28
|
$3.70
|
571,000
|
$3.35
|
$2.44
|
$2.79
|
6,246,000
|
|
Dec-16
|
$4.09
|
$3.50
|
$3.79
|
205,600
|
$3.05
|
$2.63
|
$2.88
|
4,127,700
|
|
Jan-17
|
$3.91
|
$3.24
|
$3.65
|
220,800
|
$2.96
|
$2.46
|
$2.75
|
3,614,500
|
|
Feb-17
|
$4.05
|
$2.78
|
$3.35
|
497,100
|
$3.12
|
$2.11
|
$2.53
|
11,874,700
|
|
Mar
-17
|
$3.57
|
$2.87
|
$3.32
|
243,100
|
$2.69
|
$2.19
|
$2.50
|
4,292,200
|
|
Apr
-17
|
$3.33
|
$2.48
|
$2.89
|
176,100
|
$2.50
|
$1.81
|
$2.11
|
3,499,200
|
|
May
-17
|
$3.50
|
$2.56
|
$2.57
|
261,600
|
$2.57
|
$1.88
|
$1.89
|
5,596,200
|
|
June -
17
|
$3.05
|
$2.57
|
$2.72
|
108,300
|
$2.27
|
$1.85
|
$2.09
|
2,657,800
|
|
July-17
|
$3.73
|
$1.47
|
$1.59
|
956,500
|
$2.92
|
$1.19
|
$1.27
|
11,352,500
|
|
Aug
-17
|
$1.62
|
$1.00
|
$1.15
|
457,000
|
$1.30
|
$0.81
|
$0.95
|
7,362,500
|
|
Sept -
17
|
$1.50
|
$1.00
|
$1.28
|
354,100
|
$1.17
|
$0.82
|
$0.99
|
6,883,300
|
|
Oct 1 to Oct 11 -
17
|
$1.58
|
$1.25
|
$1.35
|
291,714
|
$1.25
|
$0.98
|
$1.08
|
4,287,188
|
During
the 12-month period prior to the date of this prospectus
supplement, we have issued common shares, and securities
convertible into common shares, as follows:
In
November 2013, we entered into an equity distribution agreement
with Roth Capital Partners, LLC, or Roth, pursuant to which we
originally could, from time to time, sell up to 5,305,484 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 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. Any sales of shares under our
at-the-market offering program will be made pursuant to an
effective shelf registration statement on Form F-3 filed with the
SEC. As of the date of this prospectus supplement, we have
issued
S-14
and
sold an aggregate of 4,740,350 common shares with an aggregate
offering price of $13,872,929, including 1,606,100 common shares
with an aggregate offering price of $4,049,040 during the 12-month
period prior to the date of this prospectus supplement, under the
equity distribution agreement pursuant to our prior shelf
registration statements (Registration Nos. 333-178190 and
333-196112). Roth received aggregate compensation of $382,762 in
connection with all of such sales, including $111,707 relating to
sales made in the 12-month period prior to the date of this
prospectus supplement. After giving effect to all prior sales
pursuant to our at-the-market offering program, we may offer and
sell up to 565,134 additional common shares (or such lower number
of common shares as may be permitted under applicable exchange
rules and securities laws and regulations). Assuming the sale of
563,134 common shares at a public offering price of $1.08 per
share, the last reported sale price of our common shares on NASDAQ
on October 11, 2017, the aggregate offering price of the common
shares would be approximately $0.6 million. We are not required to
sell shares under the equity distribution agreement. There can be
no assurance that any additional shares will be sold under our
at-the-market program. We have agreed, pursuant to the securities purchase agreements entered into in
connection with this offering, not to issue, subject to certain
exceptions, common shares for a period of 60 days after the closing
of this offering.
During
the 12-month period prior to the date of this prospectus
supplement, warrants to purchase an aggregate of 467,782 common
shares were exercised.
During
the 12-month period prior to the date of this prospectus
supplement, no options were granted and 34,500 options were
exercised.
Also
during the 12-month period prior to the date of this prospectus
supplement, a total of 17,388 deferred share units were
granted.
During
the 12-month period prior to the date of this prospectus
supplement, no restricted share units were granted.
RELATED PARTY
TRANSACTIONS
During
the year ended November 30, 2014, we had repaid an outstanding
related party loan payable to Dr. Isa Odidi and Dr. Amina Odidi,
our principal stockholders, directors and executive officers.
Repayments of the related party loan were restricted under the
terms of the loan such that the principal amount thereof was
payable when payment was required solely out of (i) revenues earned
by Intellipharmaceutics Corp., a wholly-owned subsidiary of the
Company, or IPC Corp, following the effective date of October 22,
2009, or the effective date, and/or proceeds received by IPC Corp
or its affiliates from the offering of its securities after the
effective date (other than the proceeds from the transactions
completed in February 2011, March 2012, March 2013 and July 2013),
and/or amounts received by IPC Corp for scientific research tax
credits of IPC Corp and (ii) up to C$800,000 of the Net Cash from
the Vasogen transaction (as defined in the IPC Arrangement
Agreement). In March 2014, we repaid the entire outstanding related
party loan principal in the amount of $690,049 (C$764,851) out of
licensing revenues earned by IPC Corp and made interest payments of
$48,504 (C$53,762) in respect of the promissory note in accordance
with the IPC Arrangement Agreement. In November 2013, we entered
into an at-the-market equity distribution agreement, which
originally provided us with the ability to, from time to time, sell
up to an aggregate of $16.8 million of our common shares. As of the
date of this prospectus supplement, 4,740,350 of our common shares
have been sold under the at-the-market offering for net proceeds to
us of $13,872,929 and no proceeds from the sales of our common
shares under the at-the-market offering were used to repay any
portion of the related party loan.
In
January 2013, we completed a private placement financing of an
unsecured Debenture in the original principal amount of $1.5
million. The Debenture bears interest at a rate of 12% per annum,
payable monthly, is pre-payable at any time at the option of the
Company, and is convertible at any time into 450,000 common shares
at a conversion price of $3.00 per common share at the option of
the holder. Drs. Isa and Amina Odidi, our principal stockholders,
directors and executive officers, provided us with the original
$1.5 million of the proceeds for the Debenture. In December 2016, a
principal repayment of $150,000 was made on the Debenture.
Effective September 28, 2017, the maturity date for the 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.
S-15
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 our outstanding shares, director or
officer or any transactions that are unusual in their nature or
conditions to which we or any of our subsidiaries was a
party.
TRANSFER AGENTS AND
REGISTRARS
The
Canadian transfer agent and registrar for our common shares is AST
Trust Company (Canada), 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,
6201 15th Avenue, Brooklyn, NY 11219.
Common Shares
The
material terms and provisions of our common shares and each other
class of our securities which qualifies or limits our common shares
are described under the caption “Description of Share
Capital” in this prospectus supplement.
The
following discussion is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as
defined below) arising from and relating to the acquisition,
ownership, and disposition of common shares acquired pursuant to
this prospectus supplement.
For
purposes of this summary, the term “U.S. Holder” means
a beneficial owner of common shares acquired pursuant to this
offering that is any of the following for U.S. federal income tax
purposes:
|
|
(i)
|
a
citizen or an individual resident of the United
States;
|
|
|
(ii)
|
a
corporation (or an entity taxable as a corporation for United
States federal income tax purposes) created or organized in or
under the laws of the United States or any political subdivision of
the United States;
|
|
|
(iii)
|
an
estate the income of which is subject to United States federal
income taxation regardless of its source; or
|
|
|
(iv)
|
a trust
which (A) is subject to the supervision of a court within the
United States and the control of a United States person as
described in Section 7701(a)(30) of the Code; or (B) is subject to
a valid election under applicable Treasury Regulations to be
treated as a United States person.
|
For
purposes of this summary, a “non-U.S. Holder” is a
beneficial owner of common shares that is not a U.S. Holder nor a
partnership for U.S. federal income tax purposes. If a partnership
(including for this purpose any entity treated as a partnership for
U.S. federal income tax purposes) holds our common shares, the
United States federal income tax treatment of a partner generally
will depend on the status of the partner and the activities of the
partnership. A United States person that is a partner of the
partnership holding our common shares should consult its own tax
adviser.
This
summary does not address the U.S. federal income tax consequences
relevant to non-U.S. Holders arising from and relating to the
acquisition, ownership, and disposition of common
shares.
This
summary is for general information purposes only and does not
purport to be a complete discussion of all of the potential U.S.
federal income tax considerations that may be relevant to a U.S.
Holder arising from and relating to the acquisition, ownership, and
disposition of common shares. In addition, this summary does not
take into account the individual facts and circumstances of any
particular U.S. Holder that may affect the U.S. federal income tax
consequences to such U.S. Holder, including specific tax
consequences to a U.S. Holder under an applicable tax treaty.
Accordingly, this summary is not intended to be, and should not be
construed as, legal or U.S. federal income tax advice with
respect
S-16
to any
U.S. Holder. This summary does not address the U.S. federal
alternative minimum tax, U.S. federal estate and gift tax, U.S.
state and local tax, and foreign tax consequences relating to U.S.
Holders regarding the acquisition, ownership and disposition of
common shares. Each prospective U.S. Holder should consult its own
tax advisor regarding the U.S. federal tax, U.S. federal
alternative minimum tax, U.S. federal estate and gift tax, U.S.
state and local tax, and foreign tax consequences to U.S. Holders
relating to the acquisition, ownership, and disposition of common
shares.
No
legal opinion from U.S. legal counsel or ruling from the Internal
Revenue Service, or the IRS, or any other federal, state or local
agency has been requested, or will be obtained, regarding any of
the tax issues affecting the Company or its U.S. Holders. This
summary is not binding on the IRS, and the IRS is not precluded
from taking a position that is different from, and contrary to, the
positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with
one or more of the conclusions described in this
summary.
This
summary is based on current provisions of the Internal Revenue Code
of 1986, as amended, or the Code, Treasury Regulations promulgated
under the Code by the U.S. Treasury Department (whether final,
temporary, or proposed, the “Treasury Regulations”),
published rulings of the IRS, published administrative
interpretations and official pronouncements by the IRS, and U.S.
court decisions that are applicable and, in each case, as in effect
and available, as of the date of this prospectus supplement. Any of
the authorities on which this summary is based could be changed in
a material and adverse manner at any time, and any such change
could be applied on a retroactive or prospective basis which could
affect the U.S. federal income tax considerations described in this
summary. This summary also does not discuss the potential effects,
whether adverse or beneficial, of any proposed legislation that, if
enacted, could be applied on a retroactive or prospective basis.
Specifically, the below does not address the impact current U.S.
federal income tax reform proposals may have on the taxation of the
Company, its shareholders, and the rules and laws applicable to
passive foreign investment companies as discussed herein. No
assurance can be given that the IRS would not assert, or that a
court would not sustain, a position contrary to any of the tax
consequences described below.
This
summary does not address the U.S. federal income tax considerations
applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a)
U.S. Holders that are qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) U.S.
Holders that are financial institutions, underwriters, insurance
companies, real estate investment trusts, or regulated investment
companies; (c) U.S. Holders that are broker-dealers, dealers, or
traders in securities; (d) U.S. Holders that have a
“functional currency” other than the U.S. dollar; (e)
U.S. Holders that own common shares as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other
arrangement involving more than one position; (f) U.S. Holders that
acquired common shares in connection with the exercise of employee
stock options or otherwise as compensation for services; (g) U.S.
Holders that hold common shares other than as a capital asset
within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); or (h) U.S. Holders that own or have
owned (directly, indirectly, or by attribution) 10% or more of the
total combined voting power of the outstanding shares of the
Company. This summary also does not address the U.S. federal income
tax considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons
that have been, are, or will be residents or deemed to be residents
in Canada for purposes of the Income Tax Act (Canada), or the Tax
Act; (c) persons that use or hold, will use or hold, or that are or
will be deemed to use or hold common shares in connection with
carrying on a business in Canada; (d) persons whose common shares
constitute “taxable Canadian property” under the Tax
Act; or (e) persons that have a permanent establishment in Canada
for the purposes of the Canada-U.S. Tax Convention. U.S. Holders
that are subject to special provisions under the Code, including,
but not limited to, U.S. Holders described immediately above,
should consult their own tax advisor regarding the U.S. federal
income tax, U.S. federal alternative minimum tax, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences
relating to the acquisition, ownership and disposition of common
shares.
If an
entity or arrangement that is treated as a partnership (or other
“pass-through” entity) for U.S. federal income tax
purposes holds common shares, the U.S. federal income tax
consequences to such beneficial owner generally will depend on the
activities of the partnership and the status of such partner. This
summary does not address the tax consequences to any such
beneficial owner. A U.S. Holder of common shares that is a
partnership and partners in such partnership should consult their
own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership, and
disposition of common shares.
S-17
THIS
SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER
IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS WITH RESPECT TO ITS
PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE
LAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
Passive Foreign Investment Company Considerations
Special, generally
unfavorable, U.S. federal income tax rules apply to the ownership
and disposition of the stock of a passive foreign investment
company, or PFIC. As discussed below, however, a U.S. Holder of our
common shares may be able to mitigate these consequences by making
a timely and effective election to treat the Company as a qualified
electing fund, or a QEF Election, or by making a timely and
effective mark-to-market election with respect to its common
shares, or a Mark-to-Market Election.
For
U.S. federal income tax purposes, a foreign corporation is
classified as a PFIC for each taxable year in which, applying the
relevant look-through rules, either:
|
|
●
|
at
least 75% of its gross income for the taxable year consists of
specified types of “passive” income (referred to as the
“income test”); or
|
|
|
●
|
at
least 50% of the average value of its assets during the taxable
year is attributable to certain types of assets that produce
passive income or are held for the production of passive income
(referred to as the “asset test”).
|
For
purposes of the income and asset tests, if a foreign corporation
owns directly or indirectly at least 25% (by value) of the stock of
another corporation, that foreign corporation will be treated as if
it held its proportionate share of the assets of the other
corporation and received its proportionate share of the income of
that other corporation. Also, for purposes of the income and asset
tests, passive income does not include any income that is an
interest, dividend, rent or royalty payment if it is received or
accrued from a related person to the extent that amount is properly
allocable to the active income of the related person. Under
applicable attribution rules, if the Company is a PFIC, U.S.
Holders of common shares will be treated as holding stock of the
Company’s subsidiaries that are PFICs in certain
circumstances. In these circumstances, certain dispositions of, and
distributions on, stock of such subsidiaries may have consequences
for U.S. Holders under the PFIC rules.
Although the matter
is not free from doubt, we believe that we were not a PFIC during
our 2016 taxable year and may not be a PFIC during our 2017 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 2017 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
2017 taxable year). Absent one of the elections described below, 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 subject to the regime described below with respect to such
U.S. Holder, 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 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 shares will depend on whether
such U.S. Holder makes a QEF or mark-to-market election. 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 us during any year in which we are
a PFIC.
S-18
● U.S.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES,
THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY
AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A
PFIC.
The “No Election” Alternative – Taxation of
Excess Distributions
If we
are classified as a PFIC for any year during which a U.S. Holder
has held common shares and, in the case of our common shares, that
U.S. Holder has not made a QEF Election or a Mark-to-Market
Election, special rules may subject that U.S. Holder to increased
tax liability, including loss of favorable capital gains rates and
the imposition of an interest charge upon the sale or other
disposition of the common shares or upon the receipt of any excess
distribution (as defined below). Under these rules:
●
the gain, if any,
realized on such disposition will be allocated ratably over the
U.S. Holder’s holding period;
●
the amount of gain
allocated to the current taxable year and any year prior to the
first year in which we are a PFIC will be taxed as ordinary income
in the current year;
●
the amount of gain
allocated to each of the other taxable years will be subject to tax
at the highest ordinary income tax rate in effect for that year;
and
●
an interest charge
for the deemed deferral benefit will be imposed with respect to the
resulting tax attributable to each of the other taxable
years.
These
rules will continue to apply to the U.S. Holder even after we cease
to meet the definition of a PFIC, unless the U.S. Holder elects to
be treated as having sold our common shares on the last day of the
last taxable year in which we qualified as a PFIC.
An
“excess distribution,” in general, is any distribution
on common shares received in a taxable year by a U.S. Holder that
is greater than 125% of the average annual distributions received
by that U.S. Holder in the three preceding taxable years or, if
shorter, that U.S. Holder’s holding period for common
shares.
Any
portion of a distribution paid to a U.S. Holder that does not
constitute an excess distribution will be treated as ordinary
dividend income to the extent of our current and accumulated
earnings and profits (as computed for U.S. federal income tax
purposes). Such dividends generally will not qualify for the
dividends-received deduction otherwise available to U.S.
corporations. Any amounts treated as dividends paid by a PFIC
generally will not constitute “qualified dividend
income” within the meaning of Section 1(h)(11) of the Code
and will, therefore, not be eligible for the preferential 20% rate
for such income generally in effect under current law. Any such
amounts in excess of our current and accumulated earnings and
profits will be applied against the U.S. Holder’s tax basis
in the common shares and, to the extent in excess of such tax
basis, will be treated as gain from a sale or exchange of such
common shares. It is possible that any such gain may be treated as
an excess distribution. (See “Additional Considerations
– Additional Tax on Passive Income”
below).
The QEF Election Alternative
A U.S.
Holder of common shares who elects (an “Electing U.S.
Holder”) under Section 1295 of the Code in a timely
manner to treat us as a QEF (a “QEF Election”) would
generally include in gross income (and be subject to current U.S.
federal income tax on) its pro rata share of the Company’s
(a) ordinary earnings, as ordinary income, and (b) our net capital
gains, as long-term capital gain. An Electing U.S. Holder will
generally be subject to U.S. federal income tax on such amounts for
each taxable year in which we are classified as a PFIC, regardless
of whether such amounts are actually distributed to the Electing
U.S. Holder. An Electing U.S. Holder may further elect, in any
given taxable year, to defer payment of U.S. federal income tax on
such amounts, subject to certain limitations. However, if deferred,
the taxes will be subject to an interest charge.
S-19
A U.S.
Holder may make a QEF Election only if the Company furnishes the
U.S. Holder with certain tax information. If the Company should
determine that it is a PFIC, it is anticipated that it will attempt
to timely and accurately disclose such information to its U.S.
Holders and provide U.S. Holders with information reasonably
required to make such election.
A U.S.
Holder that makes a QEF Election with respect to the Company
generally (a) may receive a tax-free distribution from the Company
to the extent that such distribution represents “earnings and
profits” of the Company that were previously included in
income by the U.S. Holder because of such QEF Election and (b) will
adjust such U.S. Holder’s tax basis in his, her or its common
shares to reflect the amount included in income (resulting in an
increase in basis) or allowed as a tax-free distribution (resulting
in a decrease in basis) because of the QEF Election.
Similarly, if any
of our non-U.S. subsidiaries were classified as PFICs, a U.S.
Holder that makes a timely QEF Election with respect to any of our
subsidiaries would be subject to the QEF rules as described above
with respect to the Holder’s pro rata share of the ordinary
earnings and net capital gains of any of our subsidiaries. Our
earnings (or earnings of any of our subsidiaries) attributable to
distributions from any of our subsidiaries that had previously been
included in the income of an Electing U.S. Holder under the QEF
rules would generally not be taxed to the Electing U.S. Holder
again.
Upon
the sale or other disposition of common shares, an Electing U.S.
Holder who makes a QEF Election for the first taxable year in which
he owns common shares will recognize capital gain or loss for U.S.
federal income tax purposes in an amount equal to the difference
between the net amount realized on the disposition and the U.S.
Holder’s adjusted tax basis in the common shares. Such gain
or loss will be long-term capital gain or loss if the U.S.
Holder’s holding period in the common shares is more than one
year, otherwise it will be short-term capital gain or loss. The
deductibility of capital losses is subject to certain limitations.
A U.S. Holder’s gain realized upon the disposition of shares
generally will be treated as U.S. source income, and losses from
the disposition generally will be allocated to reduce U.S. source
income.
A QEF
Election must be made in a timely manner as specified in applicable
Treasury Regulations. Generally, the QEF Election must be made by
filing the appropriate QEF election documents at the time such U.S.
Holder timely files its U.S. federal income tax return for the
first taxable year of the Company during which it was, at any time,
a PFIC.
Each
U.S. Holder should consult its own tax advisor regarding the
availability of, procedure for making, and consequences of a QEF
Election with respect to the Company.
Mark-to-Market Election Alternative
Assuming that our
common shares are treated as marketable stock (as defined for these
purposes), a U.S. Holder that does not make a QEF Election may
avoid the application of the excess distribution rules, at least in
part, by electing, under Section 1296 of the Code, to mark the
common shares to market annually. Consequently, the U.S. Holder
will generally recognize as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year
between the fair market value of its common shares and the U.S.
Holder’s adjusted tax basis in the common shares. Any
mark-to-market loss is treated as an ordinary deduction, but only
to the extent of the net mark-to-market gain that the Holder has
included pursuant to the election in prior tax years. Any gain on a
disposition of our common shares by an electing U.S. Holder would
be treated as ordinary income. The electing U.S. Holder’s
basis in its common shares would be adjusted to reflect any of
these income or loss amounts. We do not anticipate that the
preference shares will be treated as marketable stock for these
purposes.
For
purposes of making this election, stock of a foreign corporation is
“marketable” if it is “regularly traded” on
certain “qualified exchanges”. Under applicable
Treasury Regulations, a “qualified exchange” includes a
national securities exchange that is registered with the SEC or the
national market system established pursuant to Section 11A of the
U.S. Securities Exchange Act of 1934, as amended, or the U.S.
Exchange Act, and certain foreign securities exchanges. Currently,
our common shares are traded on a “qualified exchange.”
Under applicable Treasury Regulations, PFIC stock traded on a
qualified exchange is “regularly traded” on such
exchange for any calendar year during which such stock is traded,
other than in de minimis
quantities, on at least 15 days during each calendar quarter.
Special rules apply if an election is made after the beginning of
the taxpayer’s holding period in PFIC stock.
S-20
To the
extent available, a mark-to-market election applies to the taxable
year in which such mark-to-market election is made and to each
subsequent taxable year, unless the Company’s common shares
cease to be “marketable stock” or the IRS consents to
revocation of such election. In addition, a U.S. Holder that has
made a Mark-to-Market Election does not include mark-to-market
gains, or deduct mark-to-market losses, for years when the Company
ceases to be treated as a PFIC.
The
mark-to-market rules generally do not appear to prevent the
application of the excess distribution rules in respect of stock of
any of our subsidiaries in the event that any of our subsidiaries
were considered PFICs.
Accordingly, if
Intellipharmaceutics and any of our subsidiaries were both
considered PFICs and a U.S. Holder made a Mark-to-Market Election
with respect to its common shares, the U.S. Holder may remain
subject to the excess distribution rules described above with
respect to its indirectly owned shares of subsidiary
stock.
U.S.
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
POSSIBLE APPLICABILITY OF THE PFIC RULES AND THE AVAILABILITY OF,
PROCEDURES FOR MAKING, AND CONSEQUENCES OF A QEF ELECTION OR
MARK-TO-MARKET ELECTION WITH RESPECT TO THE COMPANY’S COMMON
SHARES.
Ownership and Disposition of Common Shares to the Extent that the
PFIC Rules do not Apply
Distributions on Common Shares
A U.S.
Holder that receives a distribution, including a constructive
distribution, with respect to a common share will be required to
include the amount of such distribution in gross income as a
dividend (without reduction for any Canadian income tax withheld
from such distribution) to the extent of the current or accumulated
“earnings and profits” of the Company, as computed for
U.S. federal income tax purposes. To the extent that a distribution
exceeds the current and accumulated “earnings and
profits” of the Company, such distribution will be treated
first as a tax-free return of capital to the extent of a U.S.
Holder’s tax basis in the common shares and thereafter as
gain from the sale or exchange of such common shares. (See
“Sale or Other Taxable Disposition of Common Shares”
below). However, the Company may not maintain the calculations of
earnings and profits in accordance with U.S. federal income tax
principles, and each U.S. Holder should (unless advised to the
contrary) therefore assume that any distribution by the Company
with respect to the common shares will constitute ordinary dividend
income. Dividends received on common shares generally will not be
eligible for the “dividends received deduction”. The
dividend rules are complex, and each U.S. Holder should consult its
own tax advisor regarding the application of such
rules.
Sale or Other Taxable Disposition of Common Shares
Upon
the sale or other taxable disposition of common shares, a U.S.
Holder generally will recognize capital gain or loss in an amount
equal to the difference between the U.S. dollar value of cash
received plus the fair market value of any property received and
such U.S. Holder’s tax basis in such common shares sold or
otherwise disposed of. A U.S. Holder’s tax basis in common
shares generally will be such Holder’s U.S. dollar cost for
such common shares.
Gain or
loss recognized on such sale or other disposition generally will be
long-term capital gain or loss if, at the time of the sale or other
disposition, the common shares have been held for more than one
year. The long-term capital gains realized by non-corporate U.S.
Holders are generally subject to a lower marginal U.S. federal
income tax rate than ordinary income other than qualified dividend
income, as defined above. Currently, the maximum rate on long-term
capital gains is 20%, although the actual rates may be higher due
to the phase out of certain tax deductions, exemptions and credits.
(See “Passive Foreign Investment Company
Considerations” above). However, given the uncertain economic
conditions in the United States and the size of the federal
deficit, tax rates are subject to change and prospective U.S.
Holders should consult their tax advisors. The deductibility of
losses may be subject to limitations. See “Passive Foreign
Investment Company Considerations” above.
S-21
Additional Considerations
Tax-Exempt Investors
Special
considerations apply to U.S. persons that are pension plans and
other investors that are subject to tax only on their unrelated
business taxable income. Such a tax-exempt investor’s income
from an investment in our common shares generally will not be
treated as resulting in unrelated business taxable income under
current law, so long as such investor’s acquisition of common
shares not debt-financed. Tax-exempt investors should consult their
own tax advisors regarding an investment in our common
shares.
Additional Tax on Passive Income
Certain
individuals, estates and trusts whose income exceeds certain
thresholds will generally be required to pay a 3.8% Medicare surtax
on the lesser of (1) the U.S. Holder’s “net investment
income” for the relevant taxable year and (2) the excess of
the U.S. Holder’s modified gross income for the taxable year
over a certain threshold (which, in the case of individuals, will
generally be between U.S.$125,000 and U.S.$250,000 depending on the
individual’s circumstances). A U.S. Holder’s “net
investment income” may generally include, among other items,
certain interest, dividends, gain, and other types of income from
investments, minus the allowable deductions that are properly
allocable to that gross income or net gain. U.S. Holders are urged
to consult with their own tax advisors regarding the effect, if
any, of this tax on their ownership and disposition of common
shares. Under current proposed U.S. comprehensive tax reform,
the 3.8% Medicare surtax would be repealed. It is unclear when, if
at all, this proposal will be passed but such passage would
generally reduce the U.S. federal income taxation of our
shareholders.
Receipt of Foreign Currency
The
amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of
common shares, generally will be equal to the U.S. dollar value of
such foreign currency based on the exchange rate applicable on the
date of receipt (regardless of whether such foreign currency is
converted into U.S. dollars at that time). A U.S. Holder will have
a basis in the foreign currency equal to its U.S. dollar value on
the date of receipt. Any U.S. Holder who converts or otherwise
disposes of the foreign currency after the date of receipt may have
a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income
or loss for foreign tax credit purposes. Each U.S. Holder should
consult its own U.S. tax advisor regarding the U.S. federal income
tax consequences of receiving, owning, and disposing of foreign
currency.
Foreign Tax Credit
Subject
to the PFIC rules discussed above, a U.S. Holder that pays (whether
directly or through withholding) Canadian income tax with respect
to dividends paid on the common shares generally will be entitled,
at the election of such U.S. Holder, to receive either a deduction
or a credit for such Canadian income tax paid. Generally, a credit
will reduce a U.S. Holder’s U.S. federal income tax liability
on a dollar-for-dollar basis, whereas a deduction will reduce a
U.S. Holder’s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and generally applies to
all foreign taxes paid (whether directly or through withholding) or
accrued by a U.S. Holder during a year.
Complex
limitations apply to the foreign tax credit, including the general
limitation that the credit cannot exceed the proportionate share of
a U.S. Holder’s U.S. federal income tax liability that such
U.S. Holder’s “foreign source” taxable income
bears to such U.S. Holder’s worldwide taxable income. In
applying this limitation, a U.S. Holder’s various items of
income and deduction must be classified, under complex rules, as
either “foreign source” or “U.S. source.”
Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose, and gains recognized on
the sale of stock of a foreign corporation by a U.S. Holder should
generally be treated as U.S. source for this purpose, except as
otherwise provided in an applicable income tax treaty or if an
election is properly made under the Code. However, the amount of a
distribution with respect to the common shares that is treated as a
“dividend” may be lower for U.S. federal income tax
purposes than it is for Canadian federal income tax purposes,
resulting in a reduced foreign tax credit allowance to a U.S.
Holder. In addition, this limitation is calculated separately with
respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own U.S.
tax advisor regarding the foreign tax credit rules. It is
unclear how the proposed changes to the taxation of foreign
entities under the Code currently being deliberated in the U.S.
will affect the availability or calculation of foreign tax credits
and any change may have an adverse impact to the Company or our
shareholders.
S-22
Payments to Foreign Financial Institutions.
The
Hiring Incentives to Restore Employment Act of March 2010, or the
HIRE Act, including the Foreign Account Tax Compliance Act, or
FATCA, provisions promulgated thereunder, generally provides U.S.
federal withholding tax at a rate of 30% will apply to payments of
dividends on and, for dispositions occurring after December 31,
2018, to gross proceeds from the sale or other disposition of,
common shares, paid to (1) a “foreign financial
institution” (as defined for this purpose) unless such
institution is exempt from FATCA withholding pursuant to an
applicable intergovernmental agreement between the jurisdiction in
which it is located and the United States, enters into an agreement
with the United States government to collect and provide to the
United States tax authorities information regarding United States
account holders of such institution (which would include certain
equity and debt holders of such institution, as well as certain
account holders that are foreign entities with United States
owners) or meets other exemptions or (2) a foreign entity that is
not a financial institution, unless such entity is exempt from
FATCA withholding pursuant to an applicable intergovernmental
agreement between the jurisdiction in which it is located and the
United States, provides the withholding agent with a certification
identifying any substantial United States owners of the entity (as
defined for this purpose) or meets other exemptions. Foreign
financial institutions located in jurisdictions that have an
intergovernmental agreement with the United States governing these
withholding and reporting requirements may be subject to different
rules. If FATCA withholding is imposed, a beneficial owner that is
not a foreign financial institution may under certain circumstances
be eligible for a refund or credit of any amounts withheld by
filing certain information with the IRS. Prospective investors
should consult their own tax advisors regarding the effects of
FATCA on their investment in our common shares.
State and Local Tax
In
addition to the U.S. federal income tax discussed above, U.S.
Holders may also be subject to state and local income taxation for
amounts received on the disposition of common shares and on
dividends received. Amounts paid to U.S. Holders will not have
state and local tax amounts withheld from payments and U.S. Holders
should consult with a tax advisor regarding the state and local
taxation implications of such amounts received.
Information Reporting
In
general, U.S. Holders of common shares are subject to certain
information reporting under the Code relating to their purchase
and/or ownership of stock of a foreign corporation such as the
Company. Failure to comply with these information reporting
requirements may result in substantial penalties.
For
example, recently enacted legislation generally requires 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, etc. Certain domestic entities that are U.S.
Holders may also be required to file Form 8938 in the near future.
U.S. Holders are urged to consult with their tax advisors regarding
their reporting obligations, including the requirement to file IRS
Form 8938.
In
addition, in certain circumstances, a U.S. Holder of common shares
who disposes of such common shares in a transaction resulting in
the recognition by such Holder of losses in excess of certain
significant threshold amounts may be obligated to disclose its
participation in such transaction in accordance with the Treasury
Regulations governing tax shelters and other potentially
tax-motivated transactions or tax shelter regulations. Potential
purchasers of common shares should consult their tax advisors
concerning any possible disclosure obligation under the tax shelter
rules with respect to the disposition of their common
shares.
S-23
Backup Withholding
Generally,
information reporting requirements will apply to distributions on
our common shares or proceeds on the disposition of our common
shares paid within the U.S. (and, in certain cases, outside the
U.S.) to U.S. Holders. Such payments will generally be subject to
backup withholding tax, currently at a rate of 28% if: (a) a U.S.
Holder fails to furnish such U.S. Holder’s correct U.S.
taxpayer identification number to the payor (generally on Form
W-9), as required by the Code and Treasury Regulations, (b) the IRS
notifies the payor that the U.S. Holder’s taxpayer
identification number is incorrect, (c) a U.S. Holder is notified
by the IRS that it has previously failed to properly report
interest and dividend income, or (d) a U.S. Holder fails to
certify, under penalty of perjury, that such U.S. Holder has
furnished its correct U.S. taxpayer identification number. However,
certain exempt persons generally are excluded from these
information reporting and backup withholding rules.
Backup
withholding is not an additional tax. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a credit
against a U.S. Holder’s U.S. federal income tax liability, if
any, or will be refunded, if such U.S. Holder furnishes required
information to the IRS in a timely manner. Each U.S. Holder should
consult its own tax advisor regarding the backup withholding
rules.
CERTAIN CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary of the principal Canadian federal income tax
considerations generally applicable to a purchaser of the
Company’s common shares 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 Company’s common shares as capital property, and does not
use or hold and is not deemed to use or hold the Company’s
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.
The
2017 Canadian Federal Budget released on March 22, 2017 contained
an indication that the Canadian Federal Government intended to
pursue signature of the multilateral tax treaty that has been
proposed by the Organisation for Economic Co-operation and
Development addressing perceived tax treaty abuse (the
“MLI”). Further to this intention, on June 7, 2017,
Canada signed the MLI, and intends to take steps to complete the
ratification and implementation of the MLI in Canada. The
provisions of the MLI are not discussed herein. Non-resident
Holders should consult their own tax advisors with respect to the
potential application of the MLI provisions to their particular
circumstances.
This
summary is based upon the current provisions of the Canadian Tax
Act 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 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 Company’s common
shares 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
Company’s shares should consult their own tax advisors with
respect to their particular circumstances.
S-24
Dividends on the Company’s 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 Canada-U.S. Tax Convention (1980), 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.
Disposition of the Company’s Common Shares
In
general, a Non-resident Holder will not be subject to Canadian
income tax on capital gains arising on the disposition of the
Company’s common shares, unless such shares are
“taxable Canadian property” within the meaning of the
Canadian Tax Act. Generally, the shares of a corporation
resident in Canada will not be taxable Canadian property of a
Non-resident Holder at the time of disposition unless at any time
during the 60-month period immediately preceding the disposition,
more than 50% of the value of the Company’s common shares was
derived directly or indirectly from properties that are “real
or immovable properties”, “Canadian resource
properties”, or “timber resource properties”,
within the meaning of the Canadian Tax Act, or an option in respect
of or an interest in such properties. 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 Company’s common shares
should be exempt from tax under the Canadian Tax Act.
SEXPENSES OF ISSUANCE
AND DISTRIBUTION
The
following is a statement of the estimated expenses, other than any
underwriting fees, to be incurred in connection with the
distribution of approximately $4,000,000 of common shares under
this prospectus supplement.
|
SEC registration
fees
|
$498
|
|
NASDAQ and TSX
listing expenses
|
44,223
|
|
Printing
expenses
|
4,500
|
|
Legal fees and
expenses
|
100,000
|
|
Accountants’
fees and expenses
|
25,000
|
|
Placement agent
expenses
|
65,000
|
|
Miscellaneous
|
25,405
|
|
Total
|
$264,626
|
(1) SEC
registration and Canadian securities regulatory fees in the amount
of approximately $29,290 were paid by us upon filing the
registration statement of which this prospectus supplement forms a
part, and $4,593 was
applied in 2017 to our at-the market offering program prospectus
supplement and $1,550 to a warrant share prospectus supplement. The
remaining amount of SEC registration and Canadian securities
regulatory fees may be applied to additional offerings of
securities by us up the maximum amount of securities registered
under the registration statement
In a
concurrent private placement, or the private placement transaction,
we are selling to purchasers of our common shares in this offering,
warrants to purchase 1,818,182 common shares.
S-25
The
warrants and the common shares issuable upon the exercise of the
warrants are not being registered under the Securities Act, are not
being offered pursuant to this prospectus supplement and the
accompanying prospectus and are being offered pursuant to the
exemption provided in Section 4(a)(2) under the Securities Act and
Rule 506(b) promulgated thereunder. Accordingly, purchasers of the
warrants may only sell common shares issued upon exercise of the
warrants being sold to them in the concurrent private placement,
pursuant to an effective registration statement under the
Securities Act covering the resale of those shares, an exemption
under Rule 144 under the Securities Act or another applicable
exemption under the Securities Act.
Each
warrant will be exercisable six months after issuance, or the
initial exercise date, at an exercise price of $1.25 per share, subject to adjustment,
and will remain exercisable for 30 months from the initial exercise
date, but not thereafter. A holder of warrants will not have the
right to exercise any portion of its warrants if the holder,
together with its affiliates, would beneficially own in excess of
4.99% of the number of our common shares outstanding immediately
after giving effect to such exercise, or the beneficial ownership
limitation; provided, however, that upon notice to the Company, the
holder may increase or decrease the beneficial ownership
limitation, provided that in no event shall the beneficial
ownership limitation exceed 9.99% and any increase in the
beneficial ownership limitation will not be effective until 61 days
following notice of such increase from the holder to us. In
addition, the holders of the warrants will have the right to
participate in any rights offering or distribution of assets (such
as a spinoff) together with the holders of our common shares on an
as-exercised basis.
The
exercise price and number of common shares issuable upon the
exercise of the warrants will be subject to adjustment for stock
splits, reverse splits, and similar capital transactions, as
described in the warrants. The warrants will be exercisable on a
“cashless” basis in certain circumstances.
PLAN OF
DISTRIBUTION
We
engaged H.C. Wainwright & Co., LLC, or H.C. Wainwright or
the Placement Agent, to act as our exclusive placement agent to
solicit offers to purchase the securities offered by this
prospectus supplement from institutional investors. H.C. Wainwright
is not purchasing or selling any shares, nor are they required to
arrange for the purchase and sale of any specific number or dollar
amount of shares, other than to use their “reasonable best
efforts” to arrange for the sale of shares by us. Therefore,
we may not sell the entire amount of shares being offered. We have
entered into securities purchase agreements directly with
accredited institutional investors who purchase our common shares
in this offering.
We
have agreed to pay the Placement Agent a total cash fee equal to 7%
of the gross proceeds of this offering. In addition, we have agreed
to pay the Placement Agent a non-accountable expense allowance of
$25,000 and to reimburse the Placement Agent’s legal fees in
the amount of $40,000. In addition, we have agreed to issue to the
Placement Agent warrants to purchase up to 5% of the aggregate
number of common shares sold in this offering and issued on
closing. The Placement Agent warrants will have substantially the
same terms as the private placement warrants being sold
concurrently to the investors in this offering, except that the
Placement Agent warrant shall have an exercise price equal to 125%
of the public offering price. Pursuant to FINRA Rule 5110(g), the
Placement Agent warrants and any shares issued upon exercise of the
placement agent warrants shall not be sold, transferred, assigned,
pledged, or hypothecated, or be the subject of any hedging, short
sale, derivative, put or call transaction that would result in the
effective economic disposition of the securities by any person for
a period of 180 days immediately following the date of
effectiveness or commencement of sales of this offering, except:
(i) the transfer of any security by operation of law or by reason
of our reorganization; (ii) the transfer of any security to any
FINRA member firm participating in the offering and the officers or
partners thereof, if all securities so transferred remain subject
to the lock-up restriction set forth above for the remainder of the
time period; (iii) the transfer of any security if the aggregate
amount of our securities held by the placement agent or related
persons do not exceed 1% of the securities being offered; (iv) the
transfer of any security that is beneficially owned on a pro-rata
basis by all equity owners of an investment fund, provided that no
participating member manages or otherwise directs investments by
the fund and the participating members in the aggregate do not own
more than 10% of the equity in the fund; or (v) the exercise or
conversion of any security, if all securities remain subject to the
lock-up restriction set forth above for the remainder of the time
period.
The
following table shows the per share and total Placement Agent fees
we will pay in connection with the sale of the securities in this
offering, assuming the purchase of all of the securities we are
offering.
S-26
|
Per share placement
agent cash fees
|
$0.077
|
|
Total
|
$280,000.02
|
We
estimate the total expenses of this offering, which will be payable
by us, excluding the Placement Agent fees in the table above, will
be approximately $264,626. After deducting the fees due to the
Placement Agent and our estimated offering expenses, we expect the
net proceeds from this offering to be approximately $3.4
million.
Upon
completion of this offering, we have granted the Placement Agent a
right of first refusal to act as sole book-runner, sole manager,
sole underwriter or sole placement agent in connection with any
subsequent public or private offering of equity securities or
certain other capital markets financing by us, excluding the
Company’s at-the-market offering program, as amended from
time to time. This right of first refusal extends for twelve months
from the consummation of this offering. The terms of any such
engagement of the underwriter or placement agent will be determined
by separate agreement.
The
Placement Agent may be deemed to be an underwriter within the
meaning of Section 2(a)(11) of the Securities Act and any
commissions received by it and any profit realized on the sale of
the securities by it while acting as principal might be deemed to
be underwriting discounts or commissions under the Securities Act.
The placement agent will be required to comply with the
requirements of the Securities Act and the Exchange Act, including,
without limitation, Rule 10b-5 and Regulation M under the
Exchange Act. These rules and regulations may limit the timing
of purchases and sales of our securities by the Placement Agent.
Under these rules and regulations, the Placement Agent may not
(i) engage in any stabilization activity in connection with
our securities; and (ii) bid for or purchase any of our
securities or attempt to induce any person to purchase any of our
securities, other than as permitted under the Exchange Act, until
they have completed their participation in the
distribution.
Indemnification
We
have agreed to indemnify the Placement Agent against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, and liabilities arising from breaches of
representations and warranties contained in the engagement letter.
We have also agreed to contribute to payments the Placement Agent
may be required to make in respect of such
liabilities.
In
addition, we will indemnify the purchaser against liabilities
arising out of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by us in
the stock purchase agreement or related documents or (b) any
action instituted against a purchaser by a third party (other than
a third party who is affiliated with such purchaser) with respect
to the offering, subject to certain exceptions.
Trading Market
Our
common shares are listed on the Nasdaq Capital Market under the
symbol “IPCI.”
LEGAL
PROCEEDINGS
From
time to time, the Company may be exposed to claims and legal
actions in the normal course of business. As at the date of this
prospectus supplement, the Company is not aware of any pending or
threatened material litigation claims against the Company, other
than as described below.
In
November 2016, the Company filed an NDA for its Oxycodone ER
product candidate (abuse-deterrent oxycodone hydrochloride extended
release tablets), 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.
The Oxycodone ER application was accepted by the FDA for further
review in February 2017. The Company certified to the FDA that it
believed that its Oxycodone ER product candidate would not infringe
any of sixteen (16) patents associated with the branded product
Oxycontin® (the “Oxycontin® patents”) listed
in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, commonly known as the Orange Book (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, the Company 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 against us in the U.S. District Court for the District
of Delaware in respect of the Company’s NDA filing for
Oxycodone ER, alleging that Oxycodone ER infringes six (6) out of
the sixteen (16) patents. 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.
S-27
As a
result of the commencement of these legal proceedings, the FDA is
stayed for 30 months from granting final approval to the
Company’s Oxycodone ER product candidate. That time period
commenced on February 24, 2017, when the plaintiffs received notice
of the Company’s 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. A trial date for the Purdue litigation
has been set for October 22, 2018. The Company is confident that it
does not infringe the subject patents, and will vigorously defend
against these claims.
In July
2017, the Company announced a purported class action complaint was
filed in the S.D.N.Y Court (No. 1:17-cv-05761) by Shawn Shanawaz on
behalf of himself and all others similarly situated against the
Company and two of its executive officers. The complaint alleges
that the Company and the executive officers violated Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder
by making allegedly false and misleading statements or failing to
disclose certain information regarding the Company’s 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. Subsequently in August 2017, two
additional substantially similar (in substance and relief sought)
actions were filed by Guy Braverman (No. 1:17-cv-06045) and David
Ducharme (No. 1:17-cv-06621) in the S.D.N.Y. Court. The Company
anticipates that all three actions will be consolidated into one
complaint. The Company and its management intend to vigorously
defend against the allegations set forth in the
complaints.
LEGAL
MATTERS
The
legality of the securities offered hereby have been passed on for
us 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 one per cent of
any outstanding securities of the Company or any associate or
affiliate of the Company. Ellenoff Grossman & Schole LLP is
acting as counsel for H.C. Wainwright & Co., LLC in connection
with this offering.
The
consolidated financial statements for the year ended November 30,
2016 incorporated by reference in this prospectus supplement from
our Annual Report on Form 20-F for the year ended November 30,
2016, have been audited by MNP LLP, an independent registered
public accounting firm, 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.
S-28
The
consolidated financial statements for the years ended November 30,
2015 and 2014 incorporated in this prospectus supplement by
reference from our Annual Report on Form 20-F for the year ended
November 30, 2016, 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.
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 SEDAR at www.sedar.com.
We have
filed with the SEC a registration statement on Form F-3 relating to
the securities offered hereby. This prospectus supplement and the
accompanying prospectus, which constitute a part of the
registration statement, do not contain all of the information
contained in the registration statement, certain items of which are
contained in the exhibits to the registration statement as
permitted by the rules and regulations of the SEC. Statements
included in this prospectus supplement and the accompanying
prospectus or incorporated herein by reference about the contents
of any contract, agreement or other documents referred to are not
necessarily complete, and in each instance investors should refer
to the exhibits for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such
reference.
We are
subject to the information requirements of the 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 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 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 supplement and the accompanying
prospectus. We have not authorized anyone to provide the reader
with different information. We are not making an offer of any
securities offered hereby in any jurisdiction where the offer is
not permitted. Readers should not assume that the information
contained in this prospectus supplement and the accompanying
prospectus is accurate as of any date other than the date on the
front of this prospectus supplement or the accompanying prospectus,
as applicable, unless otherwise noted herein or as required by law.
It should be assumed that the information appearing in this
prospectus supplement and the accompanying prospectus and the
documents incorporated herein or therein 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
Information has been
incorporated by reference in this prospectus supplement and the
accompanying prospectus from documents filed with securities
commissions or similar authorities in each of the provinces and
territories of Canada and filed with, or furnished to, the
SEC. 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 supplement. 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. The following documents, filed or furnished by us with
the various securities commissions or similar authorities in the
provinces and territories of Canada and the SEC, as applicable, are
specifically incorporated by reference into and form an integral
part of this prospectus supplement and the accompanying prospectus,
provided that such documents are not incorporated by reference to
the extent that their contents are modified or superseded by a
statement contained in this prospectus supplement or in any other
subsequently filed document that is also incorporated by reference
in this prospectus supplement:
S-29
●
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, 2017, which were
included as Exhibit 99.2 to the Report on Form 6-K furnished to the
SEC on April 12, 2017, together with the Management Discussion and
Analysis of Financial Condition and Results of Operations for the
three months ended February 28, 2017, which was included as Exhibit
99.1 to the Report on Form 6-K furnished to the SEC on April 12,
2017; (ii) for the three and six months ended May 31, 2017, which
were included as Exhibit 99.2 to the Report on Form 6-K furnished
to the SEC on July 11, 2017, together with the Management
Discussion and Analysis of Financial Condition and Results of
Operations for the three and six months ended May 31, 2017, which
was included as Exhibit 99.1 to the Report on Form 6-K furnished to
the SEC on July 11, 2017; and (iii) for the three and nine months
ended August 31, 2017, which were included as Exhibit 99.2 to the
Report on Form 6-K furnished to the SEC on October 10, 2017,
together with the Management Discussion and Analysis of Financial
Condition and Results of Operations for the three and nine months
ended August 31, 2017, which was included as Exhibit 99.1 to the
Report on Form 6-K furnished to the SEC on October 10,
2017;
●
our report on Form
6-K furnished to the SEC on March 21, 2017, including our
management proxy circular dated March 8, 2017, for the annual
meeting of shareholders held on April 18, 2017, which was included
as part of Exhibit 99.2, but excluding Exhibits 99.1, 99.3, 99.4
and 99.5 thereto;
●
our annual report
on Form 20-F for the fiscal year ended November 30, 2016, which was
filed with the SEC on February 28, 2017, including our audited
consolidated balance sheets as at November 30, 2016 and November
30, 2015, and the consolidated statements of operations and
comprehensive loss, cash flows and shareholders’ equity
(deficiency) for each of the years in the three-year period ended
November 30, 2016; and
●
our reports on Form
6-K furnished to the SEC on April 19, 2017, May 10, 2017, May 24,
2017, June 6, 2017, June 30, 2017, July 27, 2017, July 31, 2017,
August 8, 2017, September 1, 2017, September 5, 2017, September 20,
2017, September 25, 2017, October 11, 2017 and October 12,
2017.
In
addition, this prospectus supplement and the accompanying
prospectus shall also be deemed to incorporate by reference all
subsequent annual reports filed on Form 20-F, Form 40-F or Form
10-K, and all subsequent filings on Forms 10-Q and 8-K filed by us
pursuant to the Exchange Act prior to the termination of the
offering made by this prospectus supplement and the accompanying
prospectus. We may incorporate by reference into this prospectus
supplement and the accompanying prospectus any Form 6-K that is
submitted to the SEC after the date of the filing of the
registration statement of which this prospectus supplement and the
accompanying prospectus form a part and before the date of
termination of this offering. Any such Form 6-K that we intend to
so incorporate shall state in such form that it is being
incorporated by reference into the registration statement of which
this prospectus supplement and the accompanying prospectus form a
part. The documents incorporated or deemed to be incorporated
herein by reference contain meaningful and material information
relating to us and the readers should review all information
contained in this prospectus supplement and the accompanying
prospectus and the documents incorporated or deemed to be
incorporated herein or therein by reference.
S-30
Upon a
new annual report on Form 20-F and related annual consolidated
financial statements being filed by us with the applicable
securities regulatory authorities during the duration that this
prospectus supplement and the accompanying prospectus is effective
(and incorporated by reference herein), the previous annual report
on Form 20-F, the previous annual consolidated financial statements
and all interim consolidated financial statements, and in each case
the accompanying management’s discussion and analysis,
information circulars (to the extent the disclosure is
inconsistent) and material change reports filed prior to the
commencement of the financial year of the Company in which the new
annual report on Form 20-F is filed shall be deemed no longer to be
incorporated into this prospectus supplement and the accompanying
prospectus for purposes of future offers and sales of securities
under this prospectus supplement and the accompanying prospectus.
Upon (i) interim consolidated financial statements and the
accompanying management’s discussion and analysis being filed
by us with the applicable securities regulatory authorities during
the duration that this prospectus supplement and the accompanying
prospectus is effective and (ii) the incorporation thereof
herein by reference, all interim consolidated financial statements
and the accompanying management’s discussion and analysis
filed prior to the new interim consolidated financial statements
shall be deemed no longer to be incorporated into this prospectus
supplement and the accompanying prospectus for purposes of future
offers and sales of securities under this prospectus supplement and
the accompanying prospectus.
Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this prospectus supplement and the
accompanying prospectus, to the extent that a statement contained
herein, or therein, or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein,
or therein, modifies or supersedes such statement. Any statement so
modified or superseded shall not constitute a part of this
prospectus supplement or accompanying prospectus, except as so
modified or superseded. The modifying or superseding statement need
not state that it has modified or superseded a prior statement or
include any other information set forth in the document that it
modifies or supersedes. The making of such a modifying or
superseding statement shall not be deemed an admission for any
purpose that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material
fact or an omission to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in
light of the circumstances in which it was made.
S-31
SHORT FORM BASE SHELF
PROSPECTUS
|
Filed pursuant to Rule 424(b)(3)
Registration No. 333-218297 |
|
New
Issue
|
|
|
INTELLIPHARMACEUTICS
INTERNATIONAL INC.
U.S.$100,000,000
Common
Shares
Preference
Shares
Warrants
Subscription
Receipts
Subscription
Rights
Units
___________
Intellipharmaceutics
International Inc. (the “Company”,
“Intellipharmaceutics”, “we”,
“us” or “our” ) may offer and issue
from time to time common shares of the Company (“common
shares”), preference shares of the Company (“preference
shares”), warrants to purchase common shares or preference
shares (“warrants”), subscription receipts
(“subscription receipts”), subscription rights
(“subscription rights”) and/or units comprised of one
or more of the foregoing (“units” and together with the
common shares, preference shares, warrants, subscription receipts
and subscription rights, the “securities”) or any
combination thereof for up to an aggregate initial offering price
of U.S.$100,000,000 (or the equivalent thereof in other currencies)
during the period that the registration statement of which this
short form base shelf prospectus (the “prospectus”),
including any amendments hereto, forms a part remains
effective. Any offerings of the Company’s
securities in Canada pursuant to this prospectus and any related
filings with the securities commissions or other securities
regulatory bodies in Canada shall be made only during the 25-month
period commencing on the date hereof. Securities may be offered
separately or together, in amounts, at prices and on terms to be
determined based on market conditions at the time of sale and set
forth in an accompanying prospectus supplement (a “prospectus
supplement”).
The specific terms
of the securities with respect to a particular offering will be set
out in the applicable prospectus supplement and may include, where
applicable (i) in the case of common shares, the number of common
shares offered, the offering price, whether the common shares are
being offered for cash, and any other terms specific to the common
shares being offered, (ii) in the case of preference shares, the
number of preference shares offered, the designation of a
particular class or series, if applicable, the offering price,
whether the preference shares are being offered for cash, the
dividend rate, if any, any terms for redemption or retraction, any
conversion rights, and any other terms specific to the preference
shares being offered, (iii) in the case of warrants, the offering
price, whether the warrants are being offered for cash, the
designation, the number and the terms of the common shares or
preference shares purchasable upon exercise of the warrants, any
procedures that will result in the adjustment of these numbers, the
exercise price, the dates and periods of exercise and any other
terms specific to the warrants being offered, (iv) in the case of
subscription receipts, the number of subscription receipts being
offered, the offering price, whether the subscription receipts are
being offered for cash, the procedures for the exchange of the
subscription receipts for common shares, preference shares or
warrants, as the case may be, and any other terms specific to the
subscription receipts being offered, (v) in the case of
subscription rights, the number of subscription rights being
offered, the exercise price, the procedures for the exercise of the
subscription rights and any other terms specific to the
subscription rights being offered, and (vi) in the case of units,
the number of units offered, the offering price, and any other
terms specific to the units being offered. Where
required by statute, regulation or policy, and where securities are
offered in currencies other than Canadian dollars, appropriate
disclosure of foreign exchange rates applicable to the securities
will be included in the prospectus supplement describing the
securities.
All shelf
information permitted under applicable law to be omitted from this
prospectus will be contained in one or more prospectus supplements
that will be delivered to purchasers together with this prospectus.
Each prospectus supplement will be incorporated by reference into
this prospectus for the purposes of securities legislation as of
the date of the prospectus supplement and only for the purposes of
the distribution of the securities to which the prospectus
supplement pertains.
This prospectus
constitutes a public offering of the securities only in those
jurisdictions where they may be lawfully offered for sale and only
by persons permitted to sell the securities in those jurisdictions.
The Company may offer and sell securities to, or through,
underwriters or dealers and also may offer and sell certain
securities directly to other purchasers or through agents pursuant
to exemptions from registration or qualification under applicable
securities laws. A prospectus supplement relating to each issue of
securities offered thereby will set forth the names of any
underwriters, dealers, or agents involved in the offering and sale
of the securities and will set forth the terms of the offering of
the securities, the method of distribution of the securities
including, to the extent applicable, the proceeds to the Company
and any fees, discounts or any other compensation payable to
underwriters, dealers or agents and any other material terms of the
plan of distribution.
The outstanding
common shares are listed for trading on the Toronto Stock Exchange
(the “TSX”), and on The NASDAQ Capital Market
(“NASDAQ”), under the symbol “IPCI”. Unless
otherwise specified in the applicable prospectus supplement, no
securities, other than common shares, will be listed on any
securities exchange.
On July 13, 2017,
the closing sale price of the common shares as reported by the TSX
and NASDAQ was Cdn$3.36 and $2.68, respectively. On July 13, 2017,
the aggregate market value of our outstanding common shares held by
non-affiliates was $68,462,610, based on our 30,572,912 outstanding
common shares as of such date, of which 24,450,932 common shares
were held by non-affiliates, and a per share price of $2.80, the
closing sale price of our common shares on July 11, 2017 (which is
the highest closing sale price of our common shares in the last 60
days). We have sold or offered securities having an aggregate
market value of approximately $3,427,319 pursuant to General
Instruction I.B.5 of Form F-3 during the prior twelve calendar
month period that ends on and includes the date of this
prospectus.
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
offering price of the securities being distributed under this
prospectus will be stated in U.S. dollars.
Purchasers
of any securities should be aware that the acquisition of the
securities may have tax consequences both in the United States and
in Canada. Such consequences for purchasers who are resident in, or
citizens of, the United States or who are resident in Canada may
not be described fully herein or in any applicable prospectus
supplement. Purchasers of the securities should read any applicable
tax discussion contained in the applicable prospectus supplement
with respect to a particular offering of securities.
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.
No underwriter has
been involved in the preparation of this prospectus nor has any
underwriter performed any review of the contents of this
prospectus.
Investing in the
securities involves certain risks. See “Risk
Factors” beginning on page 6 of this
prospectus. Prospective purchasers of the securities
should carefully consider all the information in this prospectus
and in the documents incorporated by reference in this
prospectus.
The date of this
prospectus is July 17, 2017
TABLE
OF CONTENTS
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TRADEMARKS
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1
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CAUTIONARY NOTE
REGARDING FORWARD-LOOKING INFORMATION
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1
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WHERE YOU CAN FIND
MORE INFORMATION; INCORPORATION BY REFERENCE
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4
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FINANCIAL
INFORMATION
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6
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EXCHANGE RATE
INFORMATION
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6
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RISK
FACTORS
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6
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THE
COMPANY
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31
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CONSOLIDATED
CAPITALIZATION
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35
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USE OF
PROCEEDS
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35
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EXPENSES OF
ISSUANCE AND DISTRIBUTION
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36
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PLAN OF
DISTRIBUTION
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36
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RELATED PARTY
TRANSACTIONS
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37
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DESCRIPTION OF
SHARE CAPITAL
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37
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TRADING PRICE AND
VOLUME
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39
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PRIOR
SALES
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40
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DIVIDEND
POLICY
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41
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DESCRIPTION OF
WARRANTS
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41
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DESCRIPTION OF
SUBSCRIPTION RECEIPTS
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42
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DESCRIPTION OF
SUBSCRIPTION RIGHTS
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43
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DESCRIPTION OF
UNITS
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44
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CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
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44
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CERTAIN CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS
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54
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EXPERTS
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56
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LEGAL
PROCEEDINGS
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56
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LEGAL
MATTERS
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56
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TRANSFER AGENT AND
REGISTRAR
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56
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PURCHASERS’
STATUTORY RIGHTS
|
57
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ENFORCEMENT OF
CERTAIN CIVIL LIABILITIES
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58
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DOCUMENTS FILED AS
PART OF THE REGISTRATION STATEMENT
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58
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DISCLOSURE OF
COMMISSION POSITION ON INDEMNIFICATION FOR U.S. SECURITIES ACT
LIABILITY
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58
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You
should rely only on the information contained in or incorporated by
reference into this prospectus or any prospectus
supplement. References to this “prospectus”
include documents incorporated by reference therein. See
“Where You Can Find More Information; Incorporation by
Reference” at page 4 of this prospectus. The
information in or incorporated by reference into this prospectus is
current only as of its date. We have not authorized
anyone to provide you with information that is
different. This document may only be used where it is
legal to offer these securities.
Any
reference in this prospectus or any prospectus supplement 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, such as generic Focalin XR® (dexmethylphenidate
hydrochloride extended-release) capsules and generic Seroquel
XR® (quetiapine fumarate extended release) tablets 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.
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.
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 plans,
goals and milestones, status of developments or expenditures
relating to our business, plans to fund our current activities,
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
“may,” “will,” “should,”
“expects,” “plans,” “plans to,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“confident,” “prospects,”
“potential,” “continue,”
“intends,” "look forward," “could,” 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.
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 any offering of our securities, the
potential dilutive effects of any future financing, our ability to
maintain compliance with the continued listing requirements of the
principal markets on which our securities are traded, 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 for our drug delivery
technologies, products and product candidates;
●
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;
1
●
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;
●
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;
●
the seasonal
fluctuation in the numbers of prescriptions written for our Focalin
XR® (dexmethylphenidate hydrochloride extended-release)
capsules, which may produce substantial fluctuations in
revenues;
●
the timing and
amount of insurance reimbursement regarding our
products;
●
changes in laws and
regulations affecting the conditions required by the United States
Food and Drug Administration, or 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;
●
changes in U.S.
federal income tax laws currently being considered, including, but
not limited to, the U.S. changing the method by which foreign
income is taxed and resulting changes to the passive foreign
investment company laws and regulations which may impact our
shareholders;
●
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;
2
●
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
abbreviated new drug applications, or ANDAs, and new drug
applications, or NDAs;
●
challenges in
securing final FDA approval for our product candidates, including
Rexista™ in particular, if a patent infringement suit is
filed against us with respect to any particular product
candidates (such as in the case of Rexista™), 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 targeting common forms of abuse
(oral, intra-nasal and intravenous);
●
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.
3
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 SEDAR at www.sedar.com.
We have filed with
the SEC a registration statement on Form F-3 to register an
indeterminable number of common shares, preference shares,
warrants, subscription receipts and subscription rights as may from
time to time be offered for sale by us, either individually or in
units, at indeterminate prices (up to an aggregate maximum offering
price for all such securities of U.S.$100,000,000. The registration
statement of which this prospectus is a part replaces our prior
Shelf Registration Statement (as defined below) on Form F-3
(Registration No. 333-196112) that became effective in June
2014. The information contained in this prospectus is not
complete and may be changed. This prospectus provides you with some
of the general terms that may apply to an offering of our
securities. Each time we sell securities under this shelf
registration, we will provide a prospectus supplement that will
contain specific information about the terms of that specific
offering, including the number and price per security (or exercise
price) of the securities to be offered and sold in that offering
and the specific manner in which such securities may be offered. A
prospectus supplement may also add to, update or change any of the
information contained in this prospectus. If there is an
inconsistency between the information in this prospectus and a
prospectus supplement, you should rely on the information in the
prospectus supplement. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information
contained in the registration statement, certain items of which are
contained in the exhibits to the registration statement as
permitted by the rules and regulations of the SEC. Statements
included in this prospectus or incorporated herein by reference
about the contents of any contract, agreement or other documents
referred to are not necessarily complete, and in each instance
investors should refer to the exhibits for a more complete
description of the matter involved. Each such statement is
qualified in its entirety by such reference.
We are subject to
the information requirements of the U.S. Securities Exchange Act of
1934, as amended, or 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.
4
Documents
Incorporated by Reference
Information has been
incorporated by reference in this prospectus from documents filed
with securities commissions or similar authorities in each of the
provinces and territories of Canada and filed with, or furnished
to, the SEC. 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. The following
documents filed or furnished by us with the various securities
commissions or similar authorities in the provinces and territories
of Canada and the SEC, as applicable, are specifically incorporated
by reference into and form an integral part of this prospectus,
provided that such documents are not incorporated by reference to
the extent that their contents are modified or superseded by a
statement contained in this prospectus or in any other subsequently
filed document that is also incorporated by reference in this
prospectus:
a)
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, 2017, which were
included as Exhibit 99.2 to the Report on Form 6-K furnished to the
SEC on April 12, 2017, together with the Management Discussion and
Analysis of Financial Condition and Results of Operations for the
three months ended February 28, 2017, which was included as Exhibit
99.1 to the Report on Form 6-K furnished to the SEC on April 12,
2017; and
(ii) for the three and six months ended May 31, 2017, which were
included as Exhibit 99.2 to the Report on Form 6-K furnished to the
SEC on July 11, 2017, together with the Management Discussion and
Analysis of Financial Condition and Results of Operations for the
three and six months ended May 31, 2017, which was included as
Exhibit 99.1 to the Report on Form 6-K furnished to the SEC on July
11, 2017;
b)
our report on Form
6-K furnished to the SEC on March 21, 2017, including our
management proxy circular dated March 8, 2017, for the annual
meeting of shareholders held on April 18, 2017, which was included
as part of Exhibit 99.2, but excluding Exhibits 99.1, 99.3, 99.4
and 99.5 thereto;
c)
our annual report
on Form 20-F for the fiscal year ended November 30, 2016,
which was filed with the SEC on February 28, 2017, including
our audited consolidated balance sheets as at November 30, 2016 and
November 30, 2015, and the consolidated statements of operations
and comprehensive loss, cash flows and shareholders’ equity
(deficiency) for each of the years in the three-year period ended
November 30, 2016; and
d)
our reports on Form
6-K furnished to the SEC on April 19, 2017, May 10, 2017, May 24,
2017, June 6, 2017 and June 30, 2017.
In addition, this
prospectus shall also be deemed to incorporate by reference all
subsequent annual reports filed on Form 20-F, Form 40-F or Form
10-K, and all subsequent filings on Forms 10-Q and 8-K filed by us
pursuant to the U.S. Exchange Act (i) after the date of the initial
registration statement and before effectiveness of the registration
statement and (ii) after the date of this prospectus and prior to the termination of
the offering made by this prospectus. We may incorporate by
reference into this prospectus any Form 6-K that is submitted to
the SEC after the date of the filing of the registration statement
of which this prospectus forms a part and before the date of
termination of this offering. Any such Form 6-K that we intend
to so incorporate shall state in such form that it is being
incorporated by reference into the registration statement of which
this prospectus forms a part. The documents incorporated or
deemed to be incorporated herein by reference contain meaningful
and material information relating to us and the readers should
review all information contained in this prospectus and the
documents incorporated or deemed to be incorporated herein by
reference.
Upon a new annual
report on Form 20-F and related annual consolidated financial
statements being filed by us with the applicable securities
regulatory authorities during the duration that this prospectus is
effective, the previous annual report on Form 20-F, the previous
annual consolidated financial statements and all interim
consolidated financial statements, and in each case the
accompanying management’s discussion and analysis,
information circulars (to the extent the disclosure is
inconsistent) and material change reports filed prior to the
commencement of the financial year of the Company in which the new
annual report on Form 20-F is filed shall be deemed no longer to be
incorporated into this prospectus for purposes of future offers and
sales of securities under this prospectus. Upon (i) interim
consolidated financial statements and the accompanying
management’s discussion and analysis being filed by us with
the applicable securities regulatory authorities during the
duration that this prospectus is effective and (ii) the
incorporation thereof herein by reference, all interim consolidated
financial statements and the accompanying management’s
discussion and analysis filed prior to the new interim consolidated
financial statements shall be deemed no longer to be incorporated
into this prospectus for purposes of future offers and sales of
securities under this prospectus.
5
A prospectus
supplement containing the specific terms of an offering of
securities and other information relating to the securities will be
delivered to prospective purchasers of such securities together
with this prospectus and will be deemed to be incorporated into
this prospectus as of the date of such prospectus supplement only
for the purpose of the offering of the securities covered by that
prospectus supplement.
Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this prospectus, to the extent that
a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so
modified or superseded shall not constitute a part of this
prospectus, except as so modified or superseded. The modifying
or superseding statement need not state that it has modified or
superseded a prior statement or include any other information set
forth in the document that it modifies or supersedes. The
making of such a modifying or superseding statement shall not be
deemed an admission for any purpose that the modified or superseded
statement, when made, constituted a misrepresentation, an untrue
statement of a material fact or an omission to state a material
fact that is required to be stated or that is necessary to make a
statement not misleading in light of the circumstances in which it
was made.
The financial
statements of the Company incorporated herein by reference and in
any prospectus supplement are reported in United States dollars and
have been prepared in accordance with U.S. GAAP. 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 noon spot rate of exchange of the Bank
of Canada on July 7, 2017. See “Exchange Rate
Information” below.
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.
|
|
Seven
months ended
|
Fiscal years ended November
30,
|
||
|
|
June
30, 2017
|
2016
|
2015
|
2014
|
|
High
|
Cdn
$1.3743
|
Cdn
$1.4559
|
Cdn
$1.3418
|
Cdn
$1.1440
|
|
Low
|
Cdn
$1.2977
|
Cdn
$1.2536
|
Cdn
$1.1328
|
Cdn
$1.0587
|
|
Average for the
Period
|
Cdn
$1.3343
|
Cdn
$1.3276
|
Cdn
$1.2603
|
Cdn
$1.0971
|
|
End of
Period
|
Cdn
$1.2887
|
Cdn
$1.3429
|
Cdn
$1.3353
|
Cdn
$1.1440
|
On July 7, 2017,
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
$1.2977 or Cdn $1.00=U.S.$0.7706.
Prospective
purchasers of securities should carefully consider the risk factors
contained in and incorporated by reference in this prospectus
(including subsequently filed documents incorporated by reference)
and those described in a prospectus supplement relating to a
specific offering of securities. Each of these risk factors
could adversely affect our business, operating results and
financial condition, as well as adversely affect the value of an
investment in our securities. Additional risks and
uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations.
6
Prospects for
companies in the pharmaceutical industry generally may be regarded
as uncertain given the research and development nature of the
industry and uncertainty regarding the prospects of successfully
commercializing product candidates and, accordingly, investments in
companies such as ours should be regarded as very
speculative. An investor should carefully consider the risks
and uncertainties described below, as well as other information
contained or incorporated by reference in this prospectus or in any
applicable prospectus supplement. The list of risks and
uncertainties described below is not an exhaustive list. Additional
risks and uncertainties not presently known to us or that we
believe to be immaterial may also adversely affect our business. If
any one or more of the following risks, or those contained in any
document incorporated by reference in this prospectus or in any
applicable prospectus supplement, occur, our business, financial
condition and results of operations could be seriously
harmed. Further, if we fail to meet the expectations of the
public market in any given period, the market price of our common
shares could decline. If any of the following risks actually
occurs, our business, operating results, or financial condition
could be materially adversely affected.
Our activities
entail significant risks. In addition to the usual risks associated
with a business, the following is a general description of certain
significant risk factors which may be applicable to
us.
Risks
related 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, clinical and regulatory activities
necessary to bring our products to market and to establish
commercial manufacturing, marketing and sales capabilities. As of
February 28, 2017, we had a cash balance of $2.4 million. As of
July 7, 2017, our cash balance was $0.6 million. We currently
expect to satisfy our operating cash requirements until September
2017 from cash on hand and quarterly profit share payments from Par
Pharmaceutical, Inc. (“Par”) and Mallinckrodt LLC
(“Mallinckrodt”). Should our marketing and distribution
partner Mallinckrodt soon be successful in fully commercializing
our generic Seroquel XR® (all strengths of which were launched
in June 2017), then we may be cash flow positive in the second half
of 2017. Failing this, we may need to obtain additional funding
prior to that time as we further the development of our product
candidates and if we accelerate our product commercialization
activities. There can be no assurance as to when or if Par will
launch the remaining two strengths of its generic Focalin XR®
and, if launched, whether they will be successfully commercialized,
or if generic Seroquel XR® will be successfully
commercialized. If necessary, we expect to utilize our
at-the-market equity offering program (see “Prior
Sales” below for a further description of our at-the-market
offering program) to bridge any funding shortfall in the second
half of 2017. Our future operations are highly dependent upon our
ability to source additional capital to support advancing our
product pipeline through continued research and development
activities which are at higher-than-currently projected levels and
to fund any significant expansion of our operations. Although there
can be no assurances, such capital may come from revenues from the
sales of our generic Focalin XR® capsules, from sales of our
generic Seroquel XR® tablets, from proceeds of our
at-the-market offering program, and from potential partnering
opportunities. Other 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. 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. The availability of
equity or debt financing will be affected by, among other things,
the results of our research and development, 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.
7
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 and realize our assets and pay our liabilities as they
become due. Our cash outflows are expected to consist
primarily of internal and external research and development, 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
research and development programs, the impact of the Purdue
litigation (as defined below) 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 our not taking advantage of business opportunities, in the
termination or delay of clinical trials or our 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,
Abbreviated New Drug Submissions (“ANDSs”), or NDAs, at
all or in time to competitively market our products or product
candidates.
Delays,
suspensions and terminations in our preclinical studies and
clinical trials could result in increased costs to us and delay our
ability to generate product revenues.
The commencement of
clinical trials can be delayed for a variety of reasons, including
delays in:
●
demonstrating
sufficient safety and efficacy to obtain regulatory approval to
commence a clinical trial;
●
reaching agreement
on acceptable terms with prospective contract research
organizations and clinical trial sites;
●
manufacturing
sufficient quantities of a drug candidate;
●
obtaining
institutional review board approval to conduct a clinical trial at
a prospective clinical trial site;
●
patient enrollment;
and
●
for controlled
substances, obtaining specific permission to conduct a study, and
obtaining import and export permits to ship study
samples.
Once a clinical
trial has begun, it may be delayed, suspended or terminated due to
a number of factors, including:
●
the number of
patients that participate in the trial;
●
the length of time
required to enroll suitable subjects;
●
the duration of
patient follow-up;
●
the number of
clinical sites included in the trial;
●
changes in
regulatory requirements or regulatory delays or clinical holds
requiring suspension or termination of the trials;
8
●
delays, suspensions
or termination of clinical trials due to the institutional review
board overseeing the study at a particular site;
●
failure to conduct
clinical trials in accordance with regulatory
requirements;
●
unforeseen safety
issues, including serious adverse events or side effects
experienced by participants; and
●
inability to
manufacture, through third party manufacturers, adequate supplies
of the product candidate being tested.
Based on results at
any stage of product development, we may decide to repeat or
redesign preclinical studies or clinical trials, conduct entirely
new studies or discontinue development of products for one or all
indications. In addition, our product candidates may not
demonstrate sufficient safety and efficacy in pending or any future
preclinical testing or clinical trials to obtain the requisite
regulatory approvals. Even if such approvals are obtained for
our products, they may not be accepted in the market as a viable
alternative to other products already approved or pending
approvals.
If we experience
delays, suspensions or terminations in a preclinical study or
clinical trial, the commercial prospects for our products will be
harmed, and our ability to generate product revenues will be
delayed or we may never be able to generate such
revenues.
We
have a history of operating losses, which may continue in the
foreseeable future.
We have incurred
net losses from inception through February 28, 2017 and had an
accumulated deficit of $65,006,880 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. While our commercial prospects have
improved and our revenue base is growing, there can be no assurance
that we will ever be able to achieve or sustain profitability or
positive cash flow. Our ultimate success will depend on how
many of 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, or that we will reach the level of sales
and revenues necessary to achieve and sustain
profitability.
Loss
of key scientists and 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 and
Chief Executive Officer, and Dr. Amina Odidi, our President and
Chief Operating 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
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 many 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.
Our
intellectual property may not provide meaningful protection for our
products and product candidates.
We hold certain
U.S., Canadian and foreign patents and have pending applications
for additional patents outstanding. We intend to continue to
seek patent protection for, or maintain as trade secrets, all of
our commercially
9
promising drug
delivery platforms and technologies. Our success depends, in
part, on our and our collaborative partners’ ability to
obtain and maintain patent protection for products and product
candidates, maintain trade secret protection and operate without
infringing the proprietary rights of third parties. Without
patent and other similar protection, other companies could offer
substantially identical products without incurring sizeable
development costs, which could diminish our ability to recover
expenses of and realize profits on our developed products. If
our pending patent applications are not approved, or if we are
unable to obtain patents for additional developed technologies, the
future protection for our technologies will remain
uncertain. Furthermore, third parties may independently
develop similar or alternative technologies, duplicate some or all
of our technologies, design around our patented technologies or
challenge our issued patents. Such third parties may have
filed patent applications, or hold issued patents, relating to
products or processes competitive with those we are developing or
otherwise restricting our ability to do business in a particular
area. If we are unable to obtain patents or otherwise protect
our trade secrets or other intellectual property and operate
without infringing on the proprietary rights of others, our
business, financial condition and results of operations 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. 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.
We
rely on maintaining as trade secrets our competitively sensitive
know-how and other information. Intentional or unintentional
disclosure of this information could impair our competitive
position.
As to many
technical aspects of our business, we have concluded that
competitively sensitive information is either not patentable or
that for competitive reasons it is not commercially advantageous to
seek patent protection. In these circumstances, we seek
to protect this know-how and other proprietary information by
maintaining it in confidence as a trade secret. To maintain
the confidentiality of our trade secrets, we generally enter into
agreements that contain confidentiality provisions with our
employees, consultants, collaborators, contract manufacturers and
advisors upon commencement of their relationships with
us. These provisions generally require that all confidential
information developed by the individual or made known to the
individual by us during the course of the individual’s
relationship with us be kept confidential and not disclosed to
third parties. We may not have these arrangements in place in
all circumstances, and the confidentiality provisions in our favor
may be breached. We may not become aware of, or have adequate
remedies in the event of, any such breach. In addition, in
some situations, the confidentiality provisions in our favor may
conflict with, or be subject to, the rights of third parties with
whom our employees, consultants, collaborators, contract
manufacturers or advisors have previous employment or consulting
relationships. To the extent that our employees, consultants,
collaborators, contract manufacturers or advisors use trade secrets
or know-how owned by others in their work for us, disputes may
arise as to the ownership of relative inventions. Also, others
may independently develop substantially equivalent trade secrets,
processes and know-how, and competitors may be able to use this
information to develop products that compete with our products,
which could adversely impact our business. The disclosure of
our trade secrets could impair our competitive
position. Adequate remedies may not exist in the event of
unauthorized use or disclosure of our confidential
information.
Approvals
for our product candidates may be delayed or become more difficult
to obtain if the FDA institutes changes to 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
Fee User Amendments of 2012, or GDUFA, were enacted into law. The
GDUFA legislation implemented substantial
10
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 year 2016 and 2017, there is
also an annual facility user fee of $258,905 and $273,646,
respectively. 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.
We
operate in a highly litigious environment.
From time to time,
we are subject to legal proceedings. 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 and
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.
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.
Our NDA seeking
authorization to market our Rexista™ product candidate
(abuse-deterrent oxycodone hydrochloride extended release tablets)
in the 10, 15, 20, 30, 40, 60 and 80 mg strengths was filed under
Paragraph IV of the Hatch-Waxman Act, as amended. In connection
with the NDA for our Rexista™ product candidate, we relied on
the 505(b)(2) regulatory pathway and referenced data from Purdue
Pharma L.P.'s file for its OxyContin® extended release
oxycodone hydrochloride. Our Rexista™ application was
accepted by the FDA for further review in February 2017. We
certified to the FDA that we believed that our Rexista™
product candidate would not infringe any of sixteen (16) patents
associated with the branded product Oxycontin® (the
“Oxycontin® patents”) listed in the FDA’s
Approved Drug Products with Therapeutic Equivalence Evaluations,
commonly known as the Orange Book (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
11
Delaware in respect
of our NDA filing for Rexista™, alleging that Rexista™
infringes six (6) out of the sixteen (16) patents. 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.
As a result of the
commencement of these legal proceedings, the FDA is stayed for 30
months from granting final approval to our Rexista™ 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. We are
confident that we do not infringe the subject patents, and will
vigorously defend against these claims.
Brand-name
pharmaceutical manufacturers routinely bring patent infringement
litigation against ANDA applicants seeking FDA approval to
manufacture and market generic forms of their branded products. We
are routinely subject to patent litigation that can delay or
prevent our commercialization of products, force us to incur
substantial expense to defend, and expose us to substantial
liability.
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, 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 customers, could have a
material adverse effect on our business, results of operations,
financial condition and cash flows.
Our
product candidates may not be successfully developed or
commercialized.
Successful
development of our product candidates is highly uncertain and is
dependent on numerous factors, many of which are beyond our
control. Products that appear promising in research or
early phases of development may fail to reach later stages of
development or the market for several reasons
including:
●
for ANDA
candidates, bioequivalence studies results may not meet regulatory
requirements or guidelines for the demonstration of
bioequivalence;
●
for NDA candidates,
a product may not demonstrate acceptable large-scale clinical trial
results, even though it demonstrated positive preclinical or
initial clinical trial results;
●
for NDA candidates,
a product may not be effective in treating a specified condition or
illness;
●
a product may have
harmful side effects on humans;
●
products may fail
to receive the necessary regulatory approvals from the FDA or other
regulatory bodies, or there may be delays in receiving such
approvals;
12
●
changes in the
approval process of the FDA or other regulatory bodies during the
development period or changes in regulatory review for each
submitted product application may also cause delays in the approval
or result in rejection of an application;
●
difficulties may be
encountered in formulating products, scaling up manufacturing
processes or in getting approval for manufacturing;
●
difficulties may be
encountered in the manufacture and/or packaging of our
products;
●
once manufactured,
our products may not meet prescribed quality assurance and
stability tests;
●
manufacturing
costs, pricing or reimbursement issues, other competitive
therapeutics, or other commercial factors may make the product
uneconomical; and
●
the proprietary
rights of others, and their competing products and technologies,
may prevent the product from being developed or
commercialized.
Further, success in
preclinical and early clinical trials does not ensure that
large-scale clinical trials will be successful nor does success in
preliminary studies for ANDA candidates ensure that bioequivalence
studies will be successful. Results are frequently susceptible
to varying interpretations that may delay, limit or prevent
regulatory approvals. The length of time necessary to complete
bioequivalence studies or clinical trials and to submit an
application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to
predict. As a result, there can be no assurance that any of
our product candidates currently in development will ever be
successfully commercialized.
Near-term
revenue depends significantly on the success of our first filed
ANDA (“lead”) product, our once daily generic Focalin
XR® (dexmethylphenidate hydrochloride
extended-release).
We have invested
significant time and effort in the development of our lead ANDA
product, our once daily generic Focalin XR®
(dexmethylphenidate hydrochloride extended-release) capsules, for
which we received final approval from the FDA in November 2013
under the Company ANDA (as defined below) to launch the 15 and 30
mg strengths. Commercial sales of these strengths were launched
immediately by our commercialization partner in the U.S.,
Par. Our 5, 10, 20 and 40 mg strengths were also then
tentatively FDA approved, subject to the right of Teva
Pharmaceuticals USA, Inc. (“Teva”) to 180 days of
generic exclusivity from the date of first launch of such products.
Teva launched its own 5, 10, 20 and 40 mg strengths of generic
Focalin XR® capsules on November 11, 2014, February 2, 2015,
June 22, 2015 and November 19, 2013, respectively. 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 recently had
granted final approval under the Par ANDA (as defined below) for
its generic Focalin XR® capsules in the 5, 10, 15, 20, 25, 30,
35 and 40 mg strengths. We believe Par is preparing to launch the
remaining 5 and 40 mg strengths in the near future. As the first
filer of an ANDA for generic Focalin XR® in the 25 and 35 mg
strengths, Par had 180 days of U.S. generic marketing exclusivity
for those strengths. Under a license and commercialization
agreement between us and Par (as amended, the “Par
agreement”), we receive quarterly profit-share payments on
Par’s U.S. sales of generic Focalin XR®. We expect sales
of the 10, 20, 25 and 35 mg strengths to improve our revenues
significantly in 2017. There can be no assurance as to when or if
any further launches will occur for the remaining strengths, or if
they 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 their timely payment to us
of the contracted quarterly payments as they come due. Our
near term ability to generate significant revenue will depend upon
successful commercialization of our products in the U.S., where the
branded Focalin XR® product is in the market. Although we have
several other products in our pipeline, and received final approval
from the FDA for our generic Keppra XR® (levetiracetam
extended-release tablets) for the 500 and 750 mg strengths, final
approval from the FDA for our metformin hydrochloride extended
release tablets in the 500 and 750 mg strengths and of our generic
Seroquel XR® which is partnered with Mallinckrodt,
the
13
majority of the
products in our pipeline are at earlier stages of development. We
will be exploring licensing and commercial alternatives for our
generic Keppra XR® product strengths that have been approved
by the FDA. We are also actively evaluating options to realize
commercial returns from the new approval of our generic
Glucophage® XR.
Our
significant expenditures on research and development may not lead
to successful product introductions.
We conduct research
and development primarily to enable us to manufacture and market
pharmaceuticals in accordance with FDA regulations. Typically,
research expenses related to the development of innovative
compounds and the filing of NDAs are significantly greater than
those expenses associated with ANDAs. As we continue to
develop new products, our research expenses will likely
increase. We are required to obtain FDA approval before
marketing our drug products and the approval process is costly and
time consuming. Because of the inherent risk associated with
research and development efforts in our industry, particularly with
respect to new drugs, our research and development expenditures may
not result in the successful introduction of FDA approved new
pharmaceuticals.
We
may not have the ability to develop or license, or otherwise
acquire, and introduce new products on a timely basis.
Product development
is inherently risky, especially for new drugs for which safety and
efficacy have not been established and the market is not yet
proven. Likewise, product licensing involves inherent risks
including uncertainties due to matters that may affect the
achievement of milestones, as well as the possibility of
contractual disagreements with regard to terms such as license
scope or termination rights. The development and
commercialization process, particularly with regard to new drugs,
also requires substantial time, effort and financial resources. The
process of obtaining FDA or other regulatory approval to
manufacture and market new and generic pharmaceutical products is
rigorous, time consuming, costly and largely
unpredictable. We, or a partner, may not be successful in
obtaining FDA or other required regulatory approval or in
commercializing any of the product candidates that we are
developing or licensing.
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 was to
result in a loss of or damage to our data or applications, or
inappropriate disclosure of confidential or proprietary
information, we could incur material legal claims and liability,
damage to our reputation, and the further development of our drug
candidates could be adversely affected.
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.
14
We
may not achieve our projected development goals in the time frames
we announce and expect.
We set goals
regarding the expected timing of meeting certain corporate
objectives, such as the commencement and completion of clinical
trials, anticipated regulatory approval and product launch
dates. From time to time, we may make certain public
statements regarding these goals. The actual timing of these
events can vary dramatically due to, among other things,
insufficient funding, delays or failures in our clinical trials or
bioequivalence studies, the uncertainties inherent in the
regulatory approval process, such as failure to secure appropriate
product labeling approvals, requests for additional information,
delays in achieving manufacturing or marketing arrangements
necessary to commercialize our product candidates and failure by
our collaborators, marketing and distribution partners, suppliers
and other third parties to fulfill contractual obligations. In
addition, the possibility of a patent infringement suit regarding
one or more of our product candidates could delay final FDA
approval of such candidates. If we fail to achieve one or more of
these planned goals, the price of our common shares could
decline.
If
our manufacturing facility is unable to manufacture our product(s)
or the manufacturing process is interrupted due to failure to
comply with regulations or for other reasons, it could have a
material adverse impact on our business.
If our
manufacturing facility fails to comply with regulatory requirements
or encounter other manufacturing difficulties, it could adversely
affect our ability to supply products. All facilities and
manufacturing processes used for the manufacture of pharmaceutical
products are subject to inspection by regulatory agencies at any
time and must be operated in conformity with cGMP regulations.
Compliance with FDA and Health Canada cGMP requirements applies to
both drug products seeking regulatory approval and to approved drug
products. In complying with cGMP requirements, pharmaceutical
manufacturing facilities must continually expend significant time,
money and effort in production, record-keeping and quality
assurance and control so that their products meet applicable
specifications and other requirements for product safety, efficacy
and quality. Failure to comply with applicable legal requirements
subjects our manufacturing facility to possible legal or regulatory
action, including shutdown, which may adversely affect our ability
to manufacture product. Were we not able to manufacture products at
our manufacturing facility because of regulatory, business or any
other reasons, the manufacture and marketing of these products
would be interrupted. This could have a material adverse impact on
our business, results of operations, financial condition, cash
flows and competitive position.
The
use of legal and regulatory strategies by competitors with
innovator products, including the filing of citizen petitions, may
delay or prevent the introduction or approval of our product
candidates, increase our costs associated with the introduction or
marketing of our products, or significantly reduce the profit
potential of our product candidates.
Companies with
innovator drugs often pursue strategies that may serve to prevent
or delay competition from alternatives to their innovator products.
These strategies include, but are not limited to:
●
filing
“citizen petitions” with the FDA that may delay
competition by causing delays of our product
approvals;
●
seeking to
establish regulatory and legal obstacles that would make it more
difficult to demonstrate a product’s bioequivalence or
“sameness” to the related innovator
product;
●
filing suits for
patent infringement that automatically delay FDA approval of
products seeking approval based on the Section 505(b)(2)
pathway;
●
obtaining
extensions of market exclusivity by conducting clinical trials of
innovator drugs in pediatric populations or by other
methods;
15
●
persuading the FDA
to withdraw the approval of innovator drugs for which the patents
are about to expire, thus allowing the innovator company to develop
and launch new patented products serving as substitutes for the
withdrawn products;
●
seeking to obtain
new patents on drugs for which patent protection is about to
expire; and
●
initiating
legislative and administrative efforts in various states to limit
the substitution of innovator products by pharmacies.
These strategies
could delay, reduce or eliminate our entry into the market and our
ability to generate revenues from our products and product
candidates.
Our
products may not achieve expected levels of market acceptance,
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. Levels of market acceptance for any products
marketed by us could be affected by several factors,
including:
●
the availability of
alternative products from competitors;
●
the prices of our
products relative to those of our competitors;
●
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;
and
●
the acceptance of
our products by government and private formularies.
Some of these
factors are not within our control, and our proposed products may
not achieve levels of market acceptance anticipated by
us. Additionally, continuing and increasingly sophisticated
studies of the proper utilization, safety and efficacy of
pharmaceutical products are being conducted by the industry,
government agencies and others which can call into question the
utilization, safety and efficacy of our products and any product
candidates we are currently developing or may develop in the
future. These studies could also impact a future product after
it has been marketed. In some cases, studies have resulted,
and may in the future result, in the discontinuance of product
marketing or requirement of other risk management programs such as
the need for a patient registry. The failure of our products
and any of our product candidates, once approved, to achieve market
acceptance would limit our ability to generate revenue and would
adversely affect our results of operations.
The
risks
and uncertainties inherent in conducting clinical trials
could delay or prevent the development and commercialization of our
own branded products, which could have a material adverse effect on
our results of operations, liquidity, financial condition, and
growth prospects.
There are a number
of risks and uncertainties associated with clinical trials, which
may be exacerbated by our relatively limited experience in
conducting and supervising clinical trials and preparing
NDAs. The results of initial clinical trials may not be
indicative of results that would be obtained from large scale
testing. Clinical trials are often conducted with patients
having advanced stages of disease and, as a result, during the
course of treatment these patients can die or suffer adverse
medical effects for reasons that may not be related to the
pharmaceutical agents being tested, but which nevertheless affect
the clinical trial results. In addition, side effects experienced
by the patients may cause delay of approval of our product
candidates or a limited application of an approved product.
Moreover, our clinical trials may not demonstrate sufficient safety
and efficacy to obtain FDA approval.
16
Failure can occur
at any time during the clinical trial process and, in addition, the
results from early clinical trials may not be predictive of results
obtained in later and larger clinical trials, and product
candidates in later clinical trials may fail to show the desired
safety or efficacy despite having progressed successfully through
earlier clinical testing. A number of companies in the
pharmaceutical industry have suffered significant setbacks in
clinical trials, even in advanced clinical trials after showing
positive results in earlier clinical trials. In the future,
the completion of clinical trials for our product candidates may be
delayed or halted for many reasons, including those relating to the
following:
●
delays in patient
enrollment, and variability in the number and types of patients
available for clinical trials;
●
regulators or
institutional review boards may not allow us to commence or
continue a clinical trial;
●
our inability, or
the inability of our partners, to manufacture or obtain from third
parties materials sufficient to complete our clinical
trials;
●
delays or failures
in reaching agreement on acceptable clinical trial contracts or
clinical trial protocols with prospective clinical trial
sites;
●
risks associated
with trial design, which may result in a failure of the trial to
show statistically significant results even if the product
candidate is effective;
●
difficulty in
maintaining contact with patients after treatment commences,
resulting in incomplete data;
●
poor effectiveness
of product candidates during clinical trials;
●
safety issues,
including adverse events associated with product
candidates;
●
the failure of
patients to complete clinical trials due to adverse side effects,
dissatisfaction with the product candidate, or other
reasons;
●
governmental or
regulatory delays or changes in regulatory requirements, policy and
guidelines; and
●
varying
interpretation of data by the FDA or other applicable foreign
regulatory agencies.
In addition, our
product candidates could be subject to competition for clinical
study sites and patients from other therapies under development by
other companies which may delay the enrollment in or initiation of
our clinical trials. Many of these companies have
significantly more resources than we do.
The FDA or other
foreign regulatory authorities may require us to conduct
unanticipated additional clinical trials, which could result in
additional expense and delays in bringing our product candidates to
market. Any failure or delay in completing clinical trials for
our product candidates would prevent or delay the commercialization
of our product candidates. There can be no assurance our
expenses related to clinical trials will lead to the development of
brand-name drugs which will generate revenues in the near
future. Delays or failure in the development and
commercialization of our own branded products could have a material
adverse effect on our results of operations, liquidity, financial
condition, and our growth prospects.
17
We
rely on third parties to conduct clinical trials for our product
candidates, and if they do not properly and successfully perform
their legal and regulatory obligations, as well as their
contractual obligations to us, we may not be able to obtain
regulatory approvals for our product candidates.
We design the
clinical trials for our product candidates, but rely on contract
research organizations and other third parties to assist us in
managing, monitoring and otherwise carrying out these trials,
including with respect to site selection, contract negotiation and
data management. We do not control these third parties and, as a
result, they may not treat our clinical studies as their highest
priority, or in the manner in which we would prefer, which could
result in delays.
Although we rely on
third parties to conduct our clinical trials, we are responsible
for confirming that each of our clinical trials is conducted in
accordance with our general investigational plan and
protocol. Moreover, the FDA and foreign regulatory agencies
require us to comply with regulations and standards, commonly
referred to as good clinical practices, for conducting, recording
and reporting the results of clinical trials to ensure that the
data and results are credible and accurate and that the trial
participants are adequately protected. Our reliance on third
parties does not relieve us of these responsibilities and
requirements. The FDA enforces good clinical practices through
periodic inspections of trial sponsors, principal investigators and
trial sites. If we, our contract research organizations or our
study sites fail to comply with applicable good clinical practices,
the clinical data generated in our clinical trials may be deemed
unreliable and the FDA may require us to perform additional
clinical trials before approving our marketing
applications. There can be no assurance that, upon inspection,
the FDA will determine that any of our clinical trials comply with
good clinical practices. In addition, our clinical trials must
be conducted with product manufactured under the FDA’s
current Good Manufacturing Practices, or cGMP,
regulations. Our failure, or the failure of our contract
manufacturers, if any are involved in the process, to comply with
these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process.
If third parties do
not successfully carry out their duties under their agreements with
us; if the quality or accuracy of the data they obtain is
compromised due to failure to adhere to our clinical protocols or
regulatory requirements; or if they otherwise fail to comply with
clinical trial protocols or meet expected deadlines, our clinical
trials may not meet regulatory requirements. If our clinical
trials do not meet regulatory requirements or if these third
parties need to be replaced, such clinical trials may be extended,
delayed, suspended or terminated. If any of these events occur, we
may not be able to obtain regulatory approval of our product
candidates, which could have a material adverse effect on our
results of operations, financial condition and growth
prospects.
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 have
developed or we are developing or that will cause our technologies
or products to become obsolete or non-competitive, and in obtaining
FDA approval for products faster than we could. These
developments 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 with these products, we must
also compete with established existing products and other promising
technologies and other 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.
18
We
require regulatory approvals for any products that use our drug
delivery technologies.
Our drug delivery
technologies can be quite complex, with many different
components. The development required to take a technology from
its earliest stages to its incorporation in a product that is sold
commercially can take many years and cost a substantial amount of
money. Significant technical challenges are common as
additional products incorporating our technologies progress through
development.
Any particular
technology such as our abuse-deterrent technology may not perform
in the same manner when used with different therapeutic agents, and
therefore this technology may not prove to be as useful or valuable
as originally thought, resulting in additional development
work.
If our efforts do
not repeatedly lead to successful development of product
candidates, we may not be able to grow our pipeline or to enter
into agreements with marketing and distribution partners or
collaborators that are willing to distribute or develop our product
candidates. Delays or unanticipated increases in costs of
development at any stage, or failure to solve a technical
challenge, could adversely affect our operating
results.
If contract
manufacturers fail to devote sufficient time and resources to our
concerns, or if their performance is substandard, the
commercialization of our products could be delayed or prevented,
and this may result in higher costs or deprive us of potential
product revenues.
We rely on contract
manufacturers for certain components and ingredients of our
clinical trial materials, such as active pharmaceutical
ingredients, or APIs, and we may rely on such manufacturers for
commercial sales purposes as well. Our reliance on contract
manufacturers in these respects will expose us to several risks
which could delay or prevent the commercialization of our products,
result in higher costs, or deprive us of potential product
revenues, including:
●
Difficulties in
achieving volume production, quality control and quality assurance,
or technology transfer, as well as with shortages of qualified
personnel;
●
The failure to
establish and follow cGMP and to document adherence to such
practices;
●
The need to
revalidate manufacturing processes and procedures in accordance
with FDA and other nationally mandated cGMPs and potential prior
regulatory approval upon a change in contract
manufacturers;
●
Failure to perform
as agreed or to remain in the contract manufacturing business for
the time required to produce, store and distribute our products
successfully;
●
The potential for
an untimely termination or non-renewal of contracts;
and
●
The potential for
us to be in breach of our collaboration and marketing and
distribution arrangements with third parties for the failure of our
contract manufacturers to perform their obligations to
us.
In addition, drug
manufacturers are subject to ongoing periodic unannounced
inspection by the FDA and corresponding state and foreign agencies
to ensure strict compliance with cGMP and other government
regulations. While we may audit the performance of
third-party contractors, we will not have complete control over
their compliance with these regulations and
standards. Failure by either our third-party
manufacturers or by us to comply with applicable regulations could
result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of applicable regulatory
authorities to grant review of submissions or market approval of
drugs, delays, suspension or withdrawal of approvals, product
seizures or recalls, operating restrictions, facility closures and
criminal prosecutions, any of which could harm our
business.
19
We
are subject to currency rate fluctuations that may impact our
financial results.
Our financial
results are reported in U.S. dollars and our revenues are payable
in U.S. dollars, but the majority of our expenses are payable in
Canadian dollars. There may be instances where we have net
foreign currency exposure. Any fluctuations in exchange rates
will impact our financial results.
We
are exposed to 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.
If our third-party
commercialization partners, from whom we receive revenues, are
unable or unwilling to supply necessary or sufficient documentation
to support the revenue numbers in our financial statements in a
timely manner to the satisfaction of our auditors, this may lead to
delays in the timely publication of our financial results, our
ability to obtain an auditor’s report on our financial
statements and our possible inability to access the financial
markets during the time our results remain
unpublished.
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, because they may
face intense competition, they lack adequate financial or other
resources or they decide to 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.
We
have limited sales, marketing and distribution
experience.
We have limited
experience in the sales, marketing, and distribution of
pharmaceutical products. There can be no assurance that, if
required, we would be able to establish sales, marketing, and
distribution capabilities or make arrangements with our
collaborators, licensees, or others to perform such activities or
that such efforts would be successful. If we fail to establish
successful marketing and sales capabilities or to make arrangements
with third parties, our business, financial condition and results
of operations will be materially adversely affected.
Our
significant shareholders have the ability to exercise significant
influence over certain corporate actions.
Our principal
shareholders, Drs. Amina and Isa Odidi, our President and Chief
Operating Officer and our Chairman and Chief Executive Officer,
respectively, and Odidi Holdings Inc., a privately-held company
controlled by Drs. Amina and Isa Odidi, owned in the aggregate
approximately 18.91% of our issued and outstanding common shares as
of July 7, 2017 (and collectively beneficially owned in the
aggregate approximately 31.6% of our common shares, including
common shares issuable upon the exercise of outstanding options and
the conversion of the convertible debenture in respect of the loan
to us in the original principal amount of $1,500,000 by Drs. Isa
and Amina Odidi, or the Debenture, of which $1,350,000 remains
outstanding, that are exercisable or convertible within 60 days of
the date hereof). As a result, the principal shareholders have
the ability to exercise significant influence over all matters
submitted to our shareholders for approval whether subject to
approval by a majority of holders of our common shares or subject
to a class vote or special resolution requiring the approval of
66⅔% of the votes cast by holders of our common shares, in
person or by proxy.
20
Our
effective tax rate may vary.
Various internal
and external factors may have favorable or unfavorable effects on
our future effective tax rate. These factors include, but are
not limited to, changes in tax laws, regulations and/or rates,
changing interpretations of existing tax laws or regulations,
future levels of research and development spending, the
availability of tax credit programs for the reimbursement of all or
a significant proportion of research and development spending, and
changes in overall levels of pre-tax earnings. At present, we
qualify in Canada for certain research tax credits for qualified
scientific research and experimental development pertaining to our
drug delivery technologies and drug products in research
stages. If Canadian tax laws relating to research tax credits
were substantially negatively altered or eliminated, or if a
substantial portion of our claims for tax credits were denied by
the relevant taxing authorities, pursuant to an audit or otherwise,
it would have a material adverse effect upon our financial
results.
“Comprehensive
tax reform” remains a topic of discussion in the United
States Congress. Such legislation could significantly alter the
existing Internal Revenue Code of 1986, as amended, or the Code. We
cannot predict whether, when, or to what extent U.S. federal tax
laws, regulations, interpretations, or rulings will be issued, nor
is the long-term impact of proposed comprehensive tax reforms known
at this time. We could be adversely affected by changes as a result
of comprehensive tax reform. In particular, under a recently
released draft outline of comprehensive tax reform, the U.S. is
considering changing the method by which foreign income is taxed as
well as changing the rates of U.S. federal income tax. If passed,
these changes to the Code may impact current law and regulations
regarding passive foreign investment companies and the impact on
our shareholders may be substantial.
Risks
related to our Industry
Generic
drug manufacturers will increase competition for certain products
and may reduce our expected royalties.
Part of our product
development strategy includes making NDA filings relating to
product candidates involving the novel reformulation of existing
drugs with active ingredients that are off-patent. Such NDA product
candidates, if approved, are likely to face competition from
generic versions of such drugs in the future. Regulatory
approval for generic drugs may be obtained without investing in
costly and time consuming clinical trials. Because of
substantially reduced development costs, manufacturers of generic
drugs are often able to charge much lower prices for their products
than the original developer of a new product. If we face
competition from manufacturers of generic drugs on products we may
commercialize, such as our once-daily Rexista™ product
candidate (abuse-deterrent oxycodone hydrochloride extended release
tablets), the prices at which such of our products are sold and the
revenues we may receive could be reduced.
Revenues from
generic pharmaceutical products typically decline as a result of
competition, both from other pharmaceutical companies and as a
result of increased governmental pricing pressure.
Our generic drugs
face intense competition. Prices of generic drugs typically
decline, often dramatically, especially as additional generic
pharmaceutical companies (including low-cost generic producers
based in China and India) receive approvals and enter the market
for a given product and competition intensifies. Consequently, our
ability to sustain our sales and profitability on any given product
over time is affected by the number of new companies selling such
product and the timing of their approvals.
In addition,
intense pressure from government healthcare authorities to reduce
their expenditures on prescription drugs could result in lower
pharmaceutical pricing, causing decreases in our
revenues.
Furthermore, brand
pharmaceutical companies continue to defend their products
vigorously. For example, brand companies often sell or license
their own generic versions of their products, either directly or
through other generic pharmaceutical companies (so-called
“authorized generics”). No significant regulatory
approvals are required for authorized generics, and brand companies
do not face any other significant barriers to entry into such
market. Brand companies may seek to delay introductions of generic
equivalents through a variety of commercial and regulatory tactics.
These actions may increase the costs and risks of our efforts to
introduce generic products and may delay or prevent such
introduction altogether.
21
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 their use.
Significant
uncertainty exists as to the reimbursement status of newly approved
health care products. Some of our product candidates, such as
our once-daily Rexista™ (abuse-deterrent oxycodone
hydrochloride extended release tablets), 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.
We
are subject to significant costs and uncertainties related to
compliance with the extensive regulations that govern the
manufacturing, labeling, distribution, cross-border imports and
promotion of pharmaceutical products as well as environmental,
safety and health regulations.
Governmental
authorities in the United States and Canada regulate the research
and development, testing and safety of pharmaceutical
products. The regulations applicable to our existing and
future products may change. Regulations require extensive
clinical trials and other testing and government review and final
approval before we can market our products. The cost of
complying with government regulation can be substantial and may
exceed our available resources causing delay or cancellation of our
product introductions.
Some abbreviated
application procedures for controlled-release drugs and other
products, including those related to our ANDA filings, or to the
ANDA filings of unrelated third parties in respect of drugs similar
to or chemically related to those of our ANDA filings, are or may
become the subject of petitions filed by brand-name drug
manufacturers or other ANDA filers seeking changes from the FDA in
the interpretation of the statutory approval requirements for
particular drugs as part of their strategy to thwart or advance
generic competition. We cannot predict whether the FDA will
make any changes to its interpretation of the requirements
applicable to our ANDA applications as a result of these petitions,
or whether unforeseen delays will occur in our ANDA filings while
the FDA considers such petitions or changes or otherwise, or the
effect that any changes may have on us. Any such changes in
FDA interpretation of the statutes or regulations, or any
legislated changes in the statutes or regulations, may make it more
difficult for us to file ANDAs or obtain further approval of our
ANDAs and generate revenues and thus may materially harm our
business and financial results.
Any failure or
delay in obtaining regulatory approvals could make it so that we
are unable to market any products we develop and therefore
adversely affect our business, results of operations, financial
condition and cash flows. Even if product candidates are
approved in the United States or Canada, regulatory authorities in
other countries must approve a product prior to the commencement of
marketing the product in those countries. The time required to
obtain any such approval may be longer than in the United States or
Canada, which could cause the introduction of our products in other
countries to be cancelled or materially delayed.
22
The manufacturing,
distribution, processing, formulation, packaging, labeling,
cross-border importation and advertising of our products are
subject to extensive regulation by federal agencies, including in
the United States, the FDA, Drug Enforcement Administration,
Federal Trade Commission, Consumer Product Safety Commission and
Environmental Protection Agency in the U.S., and Health Canada and
Canada Border Services Agency in Canada, among others. We are
also subject to state and local laws, regulations and
agencies. Compliance with these regulations requires
substantial expenditures of time, money and effort in such areas as
production and quality control to ensure full technical
compliance. Failure to comply with FDA and Health Canada and
other governmental regulations can result in fines, disgorgement,
unanticipated compliance expenditures, recall or seizure of
products, total or partial suspension of production or
distribution, suspension of the FDA’s or Health
Canada’s review of NDAs, ANDAs or ANDSs, as the case may be,
enforcement actions, injunctions and civil or criminal
prosecution.
Environmental laws
have changed in recent years and we may become subject to stricter
environmental standards in the future and face larger capital
expenditures in order to comply with environmental laws. We
are subject to extensive federal, state, provincial and local
environmental laws and regulations which govern the discharge,
emission, storage, handling and disposal of a variety of substances
that may be used in, or result from, our operations. We are
also subject periodically to environmental compliance reviews by
environmental, safety, and health regulatory agencies and to
potential liability for the remediation of contamination associated
with both present and past hazardous waste generation, handling,
and disposal activities. We cannot accurately predict the
outcome or timing of future expenditures that we may be required to
make in order to comply with the federal, state, local and
provincial environmental, safety, and health laws and regulations
that are applicable to our operations and facilities.
Healthcare
reform measures could hinder or prevent the commercial success of
our products and product candidates.
In the United
States, there have been, and we expect there will continue to be, a
number of legislative and regulatory changes to the healthcare
system that could affect our future revenues and potential
profitability. Federal and state lawmakers regularly propose and,
at times, enact legislation that results in significant changes to
the healthcare system, some of which are intended to contain or
reduce the costs of medical products and services. An example of
this is the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act, or,
collectively, the Affordable Care Act. In addition, other
legislative changes have been proposed and adopted in the U.S.
since the Affordable Care Act was enacted.
There is also
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 Rexista and related opioid product
candidates.
We expect that the
new presidential administration and U.S. Congress will seek to
modify, repeal, or otherwise invalidate all, or certain provisions
of, the Affordable Care Act. Since taking office, President Trump
has continued to support the repeal of all or portions of the
Affordable Care Act and the House and Senate have recently taken
certain action in furtherance of this goal.
We also expect that
additional state and federal healthcare reform measures will be
adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and
services, and which could result in reduced demand for our products
once approved or additional pricing pressures, and may adversely
affect our operating results.
Our ability to
market and promote our Rexista™ product candidate
(abuse-deterrent oxycodone hydrochloride extended release tablets)
and its abuse-deterrent features will be determined by FDA-approved
labeling requirements.
23
The commercial
success of our Rexista™ product candidate (abuse-deterrent
oxycodone hydrochloride extended release tablets) will depend upon
our ability to obtain requested FDA-approved labeling describing
its abuse-deterrent features. Our failure to achieve FDA approval
of requested product labeling containing such information will
prevent us from advertising and promoting the abuse-deterrent
features of our product candidate in a way to differentiate it from
competitive products. This would make our product candidate less
competitive in the market. Moreover, FDA approval is required in
order to make claims that a product has an abuse-deterrent
effect.
In April 2015, the
FDA published final guidance with respect to the evaluation and
labeling of abuse-deterrent opioids. The guidance provides
direction as to the studies and data required for obtaining
abuse-deterrent claims in a product label. If a product is approved
by the FDA to include such claims in its label, the applicant may
use the approved labeling information about the abuse-deterrent
features of the product in its marketing efforts to
physicians.
Although we intend
to provide data to the FDA to support approval of abuse-deterrence
label claims for Rexista™, there can be no assurance that
Rexista™ or any of our other product candidates will receive
FDA-approved labeling that describes the abuse-deterrent features
of such products. The FDA may find that our studies and data do not
support our requested abuse-deterrent labeling or that our product
candidate does not provide substantial abuse-deterrence benefits
because, for example, its deterrence mechanisms do not address the
way it is most likely to be abused. Furthermore, the FDA could
change its guidance, which could require us to conduct additional
studies or generate additional data. If the FDA does not approve
our requested abuse-deterrent labeling, we will be limited in our
ability to promote Rexista™ based on its abuse-deterrent
features and, as a result, our business may suffer.
We
are subject to product liability costs 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.
Our
products involve the use of hazardous materials and waste, and as a
result we are exposed to potential liability claims and to costs
associated with complying with laws regulating hazardous
waste.
Our research and
development activities involve the use of hazardous materials,
including chemicals, and are subject to Canadian federal,
provincial and local laws and regulations governing the use,
manufacture, storage, handling and disposal of hazardous materials
and waste products. It is possible that accidental injury or
contamination from these materials may occur. In the event of
an accident, we could be held liable for any damages, which could
exceed our available financial resources. Further, we may not
be able to maintain insurance to cover these costs on acceptable
terms, or at all. In addition, we may be required to incur
significant costs to comply with environmental laws and regulations
in the future.
24
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.
Risks
related to our common shares
Our
share price has been highly volatile and our shares could suffer a
further decline in value.
The trading price
of our common shares has been highly volatile and could continue to
be subject to wide fluctuations in price in response to various
factors, many of which are beyond our control,
including:
●
sales of our common
shares, including any sales made in connection with future
financings;
●
announcements
regarding new or existing corporate relationships or
arrangements;
●
announcements by us
of significant acquisitions, joint ventures, or capital
commitments;
●
actual or
anticipated period-to-period fluctuations in financial
results;
●
clinical and
regulatory development regarding our product
candidates;
●
litigation or
threat of litigation;
●
failure to achieve,
or changes in, financial estimates by securities
analysts;
●
comments or
opinions by securities analysts or members of the medical
community;
●
announcements
regarding new or existing products or services or technological
innovations by us or our competitors;
●
conditions or
trends in the pharmaceutical and biotechnology
industries;
25
●
additions or
departures of key personnel or directors;
●
economic and other
external factors or disasters or crises;
●
limited daily
trading volume; and
●
developments
regarding our patents or other intellectual property or that of our
competitors.
In addition, the
stock market in general and the market for drug development
companies in particular have experienced significant price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. Further, there has been significant volatility in
the market prices of securities of life science companies. In
the past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has
often been instituted. A securities class action suit against
us could result in substantial costs, potential liabilities, and
the diversion of management’s attention and
resources.
A
large number of our common shares could be sold in the market in
the near future, which could depress our stock price.
As of July 7, 2017,
we had approximately 30,572,912 common shares outstanding. In
addition, a substantial portion of our shares are currently freely
trading without restriction under the Securities Act of 1933, as
amended, or U.S. Securities Act, having been registered for resale
or held by their holders for over one year and are eligible for
sale under Rule 144. In addition, in November 2013, we established
our at-the-market equity program pursuant to which we originally
could, from time to time, sell up to 5,305,484 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). As of July 7, 2017 we have
issued and sold 4,255,111 common shares with an aggregate offering
price of $12,837,173 under the at-the-market program. As a result
of prior sales of our common shares under the equity distribution
agreement, we may in the future offer and sell our common shares
with an aggregate purchase price of up to $3,962,827 pursuant to
the at-the-market program (or such lesser amount as may then be
permitted under applicable exchange rules and securities laws and
regulations, such amount we currently can offer and sell being
limited to approximately $2.5 million). The registration
statement of which this prospectus forms a part, or this
Replacement Shelf Registration Statement, was filed to replace the
Shelf Registration Statement (as defined below). This Replacement
Shelf Registration Statement is intended, upon it being declared
effective by the SEC, to provide us with additional flexibility to
continue to access the capital markets, including through the sale
of additional common shares under our at-the-market equity program,
if we seek to do so.
On October 22,
2009, IntelliPharmaCeutics Ltd., or IPC Ltd., and Vasogen Inc., or
Vasogen, completed a plan of arrangement and merger, or the IPC
Arrangement Agreement, resulting in the formation of the
Company. Our shareholders who received shares under the IPC
Arrangement Agreement who were not deemed “affiliates”
of either Vasogen, IPC Ltd. or us prior to the IPC Arrangement
Agreement were able to resell the common shares that they received
without restriction under the U.S. Securities Act. The common
shares received by an “affiliate” after the IPC
Arrangement Agreement or who were “affiliates” of
either Vasogen, IPC Ltd. or us prior to the IPC Arrangement
Agreement are subject to certain restrictions on resale under Rule
144.
As of July 7, 2017,
there are currently common shares issuable upon the exercise of
outstanding options and warrants and the conversion of an
outstanding convertible debenture for an aggregate of approximately
7,828,102 common shares. To the extent any of our options and
warrants are exercised and the convertible debenture is
converted, a shareholder’s percentage ownership will be
diluted and our stock price could be further adversely
affected. Moreover, as the underlying shares are sold, the
market price could drop significantly if the holders of these
restricted shares sell them or if the market perceives that the
holders intend to sell these shares.
26
We
have no history or foreseeable prospect of paying cash
dividends.
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.
There
may not be an active, liquid market for our common
shares.
There is no
guarantee that an active trading market for our common shares will
be maintained on the NASDAQ Capital Market, or NASDAQ, or the
Toronto Stock Exchange, or TSX. Investors may not be able to
sell their shares quickly or at the latest market price if trading
in our common shares is not active.
Future
issuances of our shares could adversely affect the trading price of
our common shares and could result in substantial dilution to
shareholders.
We may need to
issue substantial amounts of common shares in the future. In
this regard, in November 2013, we entered into an at-the-market
program pursuant to which we originally could, from time to time,
sell up to 5,305,484 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) of
our common shares on NASDAQ or otherwise. As of July 7, 2017,
we have issued and sold 4,255,111 common shares with an aggregate
offering price of $12,837,173 under the at-the-market program.
There can be no assurance that any additional shares will be sold
under our at-the-market program. To the extent that the market
price of our common shares declines, we will need to issue an
increasing number of common shares per dollar of equity
investment. In addition to our common shares issuable in
connection with the exercise of our outstanding warrants, our
employees, and directors will hold rights to acquire substantial
amounts of our common shares. In order to obtain future
financing if required, it is likely that we will issue additional
common shares or financial instruments that are exchangeable for or
convertible into common shares. Also, in order to provide
incentives to employees and induce prospective employees and
consultants to work for us, we may offer and issue options to
purchase common shares and/or rights exchangeable for or
convertible into common shares. Future issuances of shares
could result in substantial dilution to shareholders. Capital
raising activities, if available, and dilution associated with such
activities could cause our share price to decline. In
addition, the existence of common share purchase warrants may
encourage short selling by market participants. Also, in order
to provide incentives to current employees and directors and induce
prospective employees and consultants to work for us, we have
historically granted options and deferred share units, or DSUs, and
intend to continue to do so or offer and issue other rights
exchangeable for or convertible into common shares. Future
issuances of shares could result in substantial dilution to all our
shareholders. In addition, future public sales by holders of
our common shares could impair our ability to raise capital through
any future equity offerings.
On June 4, 2014,
our most recent prior registration statement on Form F-3 was
declared effective by the SEC (the “Shelf Registration
Statement”), and on June 5, 2014, we filed a final short form
base shelf prospectus with securities regulatory authorities in
each of the provinces and territories of Canada, except Quebec.
These documents allow for, subject to securities regulatory
requirements and limitations, the potential offering of up to an
aggregate of US$100 million of our common shares, preference
shares, warrants, subscription receipts, and units, or any
combination thereof, from time to time in one or more offerings,
and are intended to give us the flexibility to take advantage of
financing opportunities when, and if, market conditions are
favorable to us. This Replacement Shelf Registration Statement was
filed to replace the existing Shelf Registration Statement and is
intended, upon it being declared effective by the SEC, to provide
us with additional flexibility to continue to access the capital
markets, including through the sale of additional common shares
under our at-the-market equity program, if we seek to do so. The
specific terms of future offerings, if any, would be established,
subject to the approval of our board of directors, at the time of
such offering and will be described in detail in a prospectus
supplement filed at the time of any such offering. As of July 7,
2017, we have not sold any securities under the Shelf Registration
Statement or the shelf prospectus, other than (i) the sale since
June 4, 2014 of 2,565,611 common shares under our at-the-market
program referred to above, (ii) the sale of units, common shares
and warrants under the Underwriting Agreement between us and Dawson
James Securities, Inc., dated May 27, 2016, and (iii) the issuance
of 1,030,590 common shares pursuant to warrants previously issued,
and there can be no assurance that any additional securities will
be sold under the Shelf Registration Statement, the shelf
prospectus or this Replacement Shelf Registration
Statement.
27
We
may in the future issue preference shares which could adversely
affect the rights of holders of our common shares and the value of
such shares.
Our board of
directors has the ability to authorize the issue of an unlimited
number of preference shares in series, and to determine the price,
rights, preferences and privileges of those shares without any
further vote or action by the holders of our common
shares. Although we have no preference shares issued and
outstanding, preference shares issued in the future, including by
this prospectus or any applicable prospectus supplement, could
adversely affect the rights and interests of holders of our common
shares.
Our
common shares may not continue to be listed on the
TSX.
Failure to maintain
the applicable continued listing requirements of the TSX could
result in our common shares being delisted from the TSX. The
TSX will normally consider the delisting of securities if, in the
opinion of the exchange, it appears that the public distribution,
price, or trading activity of the securities has been so reduced as
to make further dealings in the securities on TSX
unwarranted. Specifically, participating securities may be
delisted from the TSX if, among other things, the market value of
an issuer’s securities is less than C$3,000,000 over any
period of 30 consecutive trading days. In such circumstances,
the TSX may place an issuer under a delisting review pursuant to
which the issuer would be reviewed under the TSX’s remedial
review process and typically be granted 120 days to comply with all
requirements for continued listing. If the market price of our
common shares declines further or we are unable to maintain other
listing requirements, the TSX could commence a remedial review
process that could lead to the delisting of our common shares from
the TSX. Further, if we complete a sale, merger, acquisition, or
alternative strategic transaction, we will have to consider if the
continued listing of our common shares on the TSX is appropriate,
or possible.
If our common
shares are no longer listed on the TSX, they may be eligible for
listing on the TSX Venture Exchange. In the event that we are
not able to maintain a listing for our common shares on the TSX or
the TSX Venture Exchange, it may be extremely difficult or
impossible for shareholders to sell their common shares in
Canada. Moreover, if we are delisted from the TSX, but obtain
a substitute listing for our common shares on the TSX Venture
Exchange, our common shares will likely have less liquidity and
more price volatility than experienced on the
TSX. Shareholders may not be able to sell their common shares
on any such substitute exchange in the quantities, at the times, or
at the prices that could potentially be available on a more liquid
trading market. As a result of these factors, if our common
shares are delisted from the TSX, the price of our common shares is
likely to decline.
Our
common shares may not continue to be listed on NASDAQ.
Failure to meet the
applicable quantitative and/or qualitative maintenance requirements
of NASDAQ could result in our common shares being delisted from
NASDAQ. For continued listing, NASDAQ requires, among
other things, that listed securities maintain a minimum bid price
of not less than $1.00 per share. If the bid price falls
below the $1.00 minimum for more than 30 consecutive trading days,
an issuer will typically have 180 days to satisfy the $1.00 minimum
bid price, which must be maintained for a period of at least ten
trading days in order to regain compliance.
If we are delisted
from NASDAQ, our common shares may be eligible for trading on an
over-the-counter market in the United States. In the
event that we are not able to obtain a listing on another U.S.
stock exchange or quotation service for our common shares, it may
be extremely difficult or impossible for shareholders to sell their
common shares in the United States. Moreover, if we are
delisted from NASDAQ, but obtain a substitute listing for our
common shares in the United States, it will likely be on a market
with less liquidity, and therefore experience potentially more
price volatility than experienced on
NASDAQ. Shareholders may not be able to sell their
common shares on any such substitute U.S. market in the quantities,
at the times, or at the prices that could potentially be available
on a more liquid trading market. As a result of these factors,
if our common shares are delisted from NASDAQ, the price of our
common shares is likely to decline. In addition, a decline in
the price of our common shares will impair our ability to obtain
financing in the future.
28
Our
common shares are listed for trading in the United States and may
become subject to the SEC’s penny stock rules.
Transactions in
securities that are traded in the United States by companies with
net tangible assets of $5,000,000 or less and a market price per
share of less than $5.00 that are not traded on NASDAQ or on other
securities exchanges may be subject to the “penny
stock” rules promulgated under the U.S. Exchange
Act. Under these rules, broker-dealers who recommend such
securities to persons other than institutional investors
must:
●
make a special
written suitability determination for the
purchaser;
●
receive the
purchaser’s written agreement to a transaction prior to
sale;
●
provide the
purchaser with risk disclosure documents which identify risks
associated with investing in “penny stocks” and which
describe the market for these “penny stocks” as well as
a purchaser’s legal remedies; and
●
obtain a signed and
dated acknowledgment from the purchaser demonstrating that the
purchaser has actually received the required risk disclosure
document before a transaction in a “penny stock” can be
completed.
As a result of
these requirements, if our common shares are at such time subject
to the “penny stock” rules, broker-dealers may find it
difficult to effectuate customer transactions and trading activity
in these shares in the United States may be significantly
limited. Accordingly, the market price of the shares may be
depressed, and investors may find it more difficult to sell the
shares.
As
a foreign private issuer in the United States, we are subject to
different U.S. securities laws and rules than a domestic U.S.
issuer.
As a foreign
private issuer under U.S. securities laws, we are not required to
comply with all the periodic disclosure requirements of the U.S.
Exchange Act applicable to domestic United States companies and
therefore the publicly available information about us may be
different or more limited than if we were a United States domestic
issuer. In addition, our officers, directors, and principal
shareholders are exempt from the “real time” reporting
and “short swing” profit recovery provisions of Section
16 of the U.S. Exchange Act and the rules thereunder. Although
under Canadian rules, our officers, directors and principal
shareholders are generally required to file on SEDI (www.sedi.ca) reports of transactions
involving our common shares within five calendar days of such
transaction, our shareholders may not know when our officers,
directors and principal shareholders purchase or sell our common
shares as timely as they would if we were a United States domestic
issuer.
We
are exposed to risks if we are unable to comply with laws and
future changes to laws affecting public companies, including the
Sarbanes-Oxley Act of 2002, and also to increased costs associated
with complying with such laws.
Any future changes
to the laws and regulations affecting public companies, as well as
compliance with existing provisions of the Sarbanes-Oxley Act of
2002, or SOX, in the United States and applicable Canadian
securities laws, regulations, rules and policies, may cause us to
incur increased costs to comply with such laws and requirements,
including, among others, hiring additional personnel and increased
legal, accounting and advisory fees. Delays, or a failure to
comply with, applicable laws, rules and regulations could result in
enforcement actions, the assessment of other penalties and civil
suits. The new laws and regulations may increase potential
costs to be borne under indemnities provided by us to our officers
and directors and may make it more difficult to obtain certain
types of insurance, including liability insurance for directors and
officers; as such, we may be forced to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same
or similar coverage. The impact of these events could also
make it more difficult to attract and retain qualified persons to
serve on our board of directors, or as executive
officers.
29
We are required
annually to review and report on the effectiveness of our internal
control over financial reporting in accordance with SOX Section 404
and Multilateral Instrument 52-109 – Certification of
Disclosure in Issuer’s Annual and Interim Filings of the
Canadian Securities Administrators. The results of this review
are reported in our Annual Report on Form 20-F and in our
Management Discussion and Analysis. Management’s review
is designed to provide reasonable, not absolute, assurance that all
material weaknesses in our internal controls are
identified. Material weaknesses represent deficiencies in our
internal controls that may not prevent or detect a misstatement
occurring which could have a material adverse effect on our
quarterly or annual financial statements. In addition, there
can be no assurance that any remedial actions we take to address
any material weaknesses identified will be successful, nor can
there be any assurance that further material weaknesses will not be
identified in future years. Material errors, omissions or
misrepresentations in our disclosures that occur as a result of our
failure to maintain effective internal control over financial
reporting could have a material adverse effect on our business,
financial condition, results of operations, and the value of our
common shares.
We
may be classified as a “passive foreign investment
company” or PFIC 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 preference shares
(collectively, “shares”). It may be possible for U.S.
holders of shares 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 Code, or
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 2016 taxable year and will not likely be a PFIC during
our 2017 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 2017 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
2017 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 shares, we generally will continue to be treated as a PFIC
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 shares will depend on whether such
U.S. Holder makes a QEF or mark-to-market election. Unless
otherwise provided by the IRS, a U.S. holder of our 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.
It is unclear how
corporate tax reform currently being considered in the United
States, specifically the recent proposal to change the method by
which income derived from outside of the U.S. is taxed, will affect
the PFIC rules or QEF elections. The foregoing only speaks to the
United States federal income tax considerations as to the Code in
effect on January 1, 2017.
30
The
foregoing does not purport to be a complete enumeration or
explanation of the tax risks involved in an investment in our
company. Prospective investors should read this entire
prospectus and any applicable prospectus supplement and consult
with their own legal, tax and financial advisors before deciding to
invest in our company.
It
may be difficult to obtain and enforce judgments against us because
of our Canadian residency.
We are governed by
the laws of Canada. All of our directors and officers are
residents of Canada and all or a substantial portion of our assets
and the assets of such persons may be located outside of the United
States. As a result, it may be difficult for shareholders to
effect service of process upon us or such persons within the United
States or to realize in the United States on judgments of courts of
the United States predicated upon the civil liability provisions of
the U.S. federal securities laws or other laws of the United
States. In addition, there is doubt as to the enforceability
in Canada of liabilities predicated solely upon U.S. federal
securities law against us, our directors, controlling persons and
officers who are not residents of the United States, in original
actions or in actions for enforcements of judgments of U.S.
courts.
History
and Development of the Company
The Company was
incorporated under the Canada
Business Corporations Act 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 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 Vasogen 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
“IPC Arrangement Transaction”). The
completion of the IPC Arrangement Transaction on October 22, 2009
resulted in the formation of the Company, which is incorporated
under the laws of Canada. The common shares of the Company are
traded on the TSX and NASDAQ.
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, or GIT, diabetes and
pain.
31
In November 2005,
we entered into the Par agreement, 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 10 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®
(dexmethylphenidate hydrochloride extended-release)
capsules. Commercial sales of these strengths were launched
immediately by our commercialization partner in the U.S.,
Par.
Our 5, 10, 20 and
40 mg strengths were also then tentatively FDA approved, subject to
the right of Teva to 180 days of generic exclusivity from the date
of first launch of such products. 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® currently marketed by Par. The FDA recently had 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. We
believe Par is preparing to launch the remaining 5 and 40 mg
strengths in the near future. As the first filer of an ANDA for
generic Focalin XR® in the 25 and 35 mg strengths, Par had 180
days of U.S. generic marketing exclusivity for those strengths.
Under the Par agreement, we receive quarterly profit share payments
on Par’s U.S. sales of generic Focalin XR®. We expect
sales of the 10, 20, 25 and 35 mg strengths to improve our revenues
significantly in 2017. There can be no assurance as to when or if
any further launches will occur for the remaining strengths, or if
they will be successfully commercialized.
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. Our newly-approved 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 and serve to limit the overall market opportunity. We are
actively evaluating options to realize commercial returns from this
new approval. There can be no assurance that our metformin
hydrochloride extended release tablets for the 500 and 750 mg
strengths will be successfully commercialized.
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 and serve to limit the overall
market opportunity. We are actively exploring the best approach to
maximize our commercial returns from this approval. There can be no
assurance that our generic Keppra XR® for the 500 and 750 mg
strengths will be successfully commercialized.
32
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. Our final FDA approval followed the expiry of 180-day
exclusivity periods granted to the first filers of generic
equivalents to the branded product, which were shared by Par and
Accord Healthcare (“Accord”). The Company has
manufactured and shipped commercial quantities of all strengths of
generic Seroquel XR® to our marketing and distribution partner
Mallinckrodt, and Mallinckrodt launched all strengths in June 2017.
There can be no assurance that our generic Seroquel XR® in any
of the 50, 150, 200, 300 and 400 mg strengths will be successfully
commercialized.
In October 2016, we
announced a license and commercial supply agreement with
Mallinckrodt, or the Mallinckrodt agreement, granting Mallinckrodt
an exclusive license to market, sell and distribute in the U.S. the
following extended release drug product candidates (“licensed
products”) for which we have ANDAs filed with the
FDA:
●
Quetiapine fumarate
extended-release tablets (generic Seroquel XR®) – ANDA
Approved by FDA
●
Desvenlafaxine
extended-release tablets (generic Pristiq®) – ANDA Under
FDA Review
●
Lamotrigine
extended-release tablets (generic Lamictal® XR™) –
ANDA Under FDA Review
Under the terms of
the 10-year agreement, 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 to us). 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.
Our goal is to
leverage our proprietary technologies and know-how in order to
build a diversified portfolio of commercialized products that
generate revenue. 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 to do so, will improve our return from our products while
allowing us to focus on our core competencies. We expect
expenditures in investing activities 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. 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 generally
pays certain of the expenses of development, sometimes makes
certain milestone payments to us and receives a share of revenues
or profits if the drug is developed successfully to completion, the
control of which is generally in the discretion of our drug
development partner.
33
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
(“R&D”) emphasis towards specialty new product
development, facilitated by the 505(b)(2) regulatory pathway, by
advancing the product development program for both Rexista™
and Regabatin™. The technology that is central to our abuse
deterrent formulation of our Rexista™ 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 Rexista™ (abuse deterrent oxycodone hydrochloride
extended release tablets) 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 No. 9,522,119 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. The issuance of these patents provides us with the
opportunity to accelerate our PODRAS™ development plan in
2017 by pursuing proof of concept studies in humans. We intend to
incorporate this technology in an alternate Rexista™ product
candidate.
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 existing
controlled-release (once-a-day) products whose active
pharmaceutical ingredients, or 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.
34
●
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.
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 beneficial.
Incidental services
which we may provide from time to time include consulting advice
provided to other organizations regarding FDA
standards.
CONSOLIDATED
CAPITALIZATION
Except as set forth
below, there have been no material changes in our share and loan
capital, on a consolidated basis, since the date of our condensed
unaudited interim consolidated financial statements as at and for
the three month period ended February 28, 2017, which are
incorporated by reference in this prospectus.
In November 2013,
we established an at-the-market equity program pursuant to which we
originally could, from time to time, sell up to 5,305,484 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). As a result of prior
sales of our common shares under the equity distribution agreement,
we may in the future offer and sell our common shares with an
aggregate purchase price of up to $3,962,827 pursuant to the
at-the-market program (or such lesser amount as may then be
permitted under applicable exchange rules and securities laws and
regulations, such amount we currently can offer and sell being
limited to approximately $2.5 million). During the period
commencing March 1, 2017 through July 7, 2017, 401,554 of our
common shares were sold under the at-the-market offering for net
proceeds to us of $901,407. There can be no assurance that any
additional shares will be sold under the at-the-market
program.
Unless otherwise
specified in a prospectus supplement, we may use the net proceeds
from the sale of shelf securities under this prospectus for general
corporate purposes, including funding research, acceleration of one
or more product development initiatives, and other corporate
development opportunities and to possibly fund costs and other
expenses relating to our current leased facilities to accommodate
our anticipated growth requirements, and, although we have no
present understandings, commitments or agreements to do so,
potential acquisitions of, or investments in, companies and
technologies that complement our businesses. Each prospectus
supplement will contain specific information, if any, concerning
the use of proceeds from that sale of securities. Pending the
application of such proceeds, we expect to invest the proceeds in
short-term, interest bearing, investment-grade marketable
securities or money market obligations.
35
All expenses
relating to an offering of securities and any compensation paid to
underwriters, dealers or agents, as the case may be, will be paid
out of the Company’s general funds, unless otherwise stated
in the applicable prospectus supplement.
EXPENSES
OF ISSUANCE AND DISTRIBUTION
The following is a
statement of the expenses (all of which are estimated), 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.
|
SEC registration
and Canadian securities regulatory fees
|
$29,290
|
|
Nasdaq and TSX
listing expenses
|
*
|
|
Printing
expenses
|
*
|
|
Legal fees and
expenses
|
*
|
|
Accountants’
fees and expenses
|
*
|
|
Miscellaneous
|
*
|
|
Total
|
$*
|
____________________________
* to be provided by
a prospectus supplement, or as an exhibit to a Report on Form 6-K
that is incorporated by reference into this
prospectus.
The Company may
sell the securities, separately or together, to or through
underwriters or dealers purchasing as principals for public
offering and sale by them, and also may sell securities to one or
more other purchasers directly or through agents. Each prospectus
supplement will set forth the terms of the offering, including the
name or names of any underwriters or agents, the purchase price or
prices of the securities and the proceeds to the Company from the
sale of the securities.
The securities may
be sold from time to time in one or more transactions at a fixed
price or prices which may be changed or at market prices prevailing
at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The prices at which the securities
may be offered may vary as between purchasers and during the period
of distribution. If, in connection with the offering of securities
at a fixed price or prices, the underwriters have made a bona fide
effort to sell all of the securities at the initial offering price
fixed in the applicable prospectus supplement, the public offering
price may be decreased and thereafter further changed, from time to
time, to an amount not greater than the initial public offering
price fixed in such prospectus supplement, in which case the
compensation realized by the underwriters will be decreased by the
amount that the aggregate price paid by purchasers for the
securities is less than the gross proceeds paid by the underwriters
to the Company.
Underwriters,
dealers and agents who participate in the distribution of the
securities may be entitled under agreements to be entered into with
the Company to indemnification by the Company against certain
liabilities, including liabilities under the U.S. Securities Act
and Canadian securities legislation, or to contribution with
respect to payments which such underwriters, dealers or agents may
be required to make in respect thereof. Such underwriters, dealers
and agents may be customers of, engage in transactions with, or
perform services for, the Company in the ordinary course of
business.
In connection with
any offering of securities, except as otherwise set out in a
prospectus supplement relating to a particular offering of
securities, the underwriters may over-allot or effect transactions
intended to maintain or stabilize the market price of the
securities offered at a level above that which might otherwise
prevail in the open market. Such transactions, if commenced,
may be discontinued at any time. Any underwriters, dealers or
agents to or through whom securities are sold by us for public
offering and sale may make a market in the securities, but such
underwriters, dealers or agents will not be obligated to do so and
may discontinue any market making at any time without
notice. No assurance can be given that a trading market in the
securities of any series or issue will develop or as to the
liquidity of any such trading market for the
securities.
36
We may sell the
securities covered by this prospectus from time to time.
Registration of our securities covered by this prospectus does not
mean, however, that those securities will necessarily be offered or
sold.
RELATED PARTY
TRANSACTIONS
During the year
ended November 30, 2014, we had repaid an outstanding related party
loan payable to Dr. Isa Odidi and Dr. Amina Odidi, our principal
stockholders, directors and executive officers. Repayments of the
related party loan were restricted under the terms of the loan such
that the principal amount thereof was payable when payment was
required solely out of (i) revenues earned by Intellipharmaceutics
Corp., a wholly-owned subsidiary of the Company (“IPC
Corp”) following the effective date of October 22, 2009
(“effective date”), and/or proceeds received by IPC
Corp or its affiliates from the offering of its securities after
the effective date (other than the proceeds from the transactions
completed in February 2011, March 2012, March 2013 and July 2013),
and/or amounts received by IPC Corp for scientific research tax
credits of IPC Corp and (ii) up to C$800,000 of the Net Cash from
the Vasogen transaction (as defined in the IPC Arrangement
Agreement). In March 2014, we repaid the entire outstanding related
party loan principal, in the amount of $690,049 (C$764,851) out of
licensing revenues earned by IPC Corp and made interest payments of
$48,504 (C$53,762) in respect of the promissory note in accordance
with the IPC Arrangement Agreement.
In January 2013, we
completed a private placement financing of an unsecured Debenture
in the original principal amount of $1.5 million. The Debenture
bears interest at a rate of 12% per annum, payable monthly, is
pre-payable at any time at the option of the Company, and is
convertible at any time into common shares at a conversion price of
$3.00 per common share at the option of the holder. Drs. Isa and
Amina Odidi, our principal stockholders, directors and executive
officers provided us with the original $1.5 million of the proceeds
for the Debenture. In December 2016, a principal repayment of
$150,000 was made on the Debenture. Effective March 28, 2017, the
maturity date for the Debenture was extended to October 1, 2017.
The Company currently expects to repay the current outstanding
principal amount of $1,350,000 on or about October 1, 2017, if the
Company then has cash available
Since the beginning
of the Company’s preceding three financial years to the date
hereof, other than discussed above, there have been no transactions
or proposed transactions which are material to the Company or to
any associate, holder of 10% of the Company’s outstanding
shares, director or officer or any transactions that are unusual in
their nature or conditions to which the Company or any of its
subsidiaries was a party.
The Company’s
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 July 7, 2017, there
were 30,572,912 common shares and no preference shares issued and
outstanding.
Common
Shares
Each of our common
shares entitles the holder thereof to one vote at any meeting of
shareholders of the Company, 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. The holders of common shares have the right to
receive the remaining property of the Company in the event of
liquidation, dissolution, or winding-up of the Company, whether
voluntary or involuntary.
37
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 the shareholders of the
Company. Holders of preference shares will be entitled to
preference with respect to payment of dividends and the
distribution of assets in the event of liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or any
other distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs, on such
shares over the common shares and over any other shares ranking
junior to the preference shares.
Warrants
At July 7, 2017, an
aggregate of 1,994,797 common shares were issuable upon
the exercise of outstanding common share purchase warrants, with a
weighted average exercise price of $2.03 per common
share.
Options
As of July 7, 2017,
there were 5,383,305 common shares issuable upon the exercise of
outstanding options. The weighted average exercise price of these
options is $3.45 per common share. As at July 7, 2017, up to
434,951 additional common shares were reserved for issuance under
our option plan.
Convertible
Debenture
On January 10,
2013, we completed a private placement financing of an unsecured
Debenture in the original principal amount of $1.5 million. The
Debenture was originally due to mature on January 1, 2015, but
effective October 1, 2014, the maturity date was extended to July
1, 2015; effective June 29, 2015, the July 1, 2015 maturity date
was extended to January 1, 2016; and effective as of December 8,
2015, the maturity date was extended to July 1, 2016. Effective May
26, 2016, the maturity date of the Debenture was further extended
to December 1, 2016. The Debenture bears interest at a rate of 12%
per annum, payable monthly, is pre-payable at any time at the
option of the Company, and was convertible at any time into 500,000
common shares at a conversion price of $3.00 per common share at
the option of the holder. Drs. Isa and Amina Odidi, our principal
stockholders, directors and executive officers provided us with the
$1.5 million of the proceeds for the Debenture. Effective December
1, 2016, the maturity date for the 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 Debenture is convertible at any time into 450,000 common shares
at a conversion price of $3.00 per common share at the option of
the holder. Effective March 28, 2017, the maturity date of the
Debenture was further extended to October 1, 2017. The Company
currently expects to repay the current net amount of $1,350,000 on
or about October 1, 2017, if the Company then has cash
available.
Deferred
Share Units
At November 30,
2016, there were 76,743 DSUs issued and outstanding. From November
30, 2016 to July 7, 2017, an additional 9,207 DSUs have been
issued. At July 7, 2017, 24,050 additional DSUs are reserved for
issuance under our DSU plan.
Restricted
Share Units
At November 30,
2016, there were no restricted share units (“RSUs”)
issued and outstanding. From November 30, 2016 to the date of this
prospectus, no RSUs have been issued. At the date of this
prospectus, 330,000 RSUs are reserved for issuance under our RSU
Plan.
38
Registration
Rights
We conducted a
private placement issuance 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(2) and/or Regulation S thereof and such 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 one percent (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.
TRADING PRICE AND
VOLUME
Our common shares
began trading on October 22, 2009 and are currently listed on the
TSX and listed on 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.
39
The following table
sets forth the monthly trading history for the preceding 12 month
period, the reported high, low and closing prices (in Canadian
dollars) and total volume traded of our common shares on the TSX
and reported high, low and closing prices (in U.S. dollars) and
total volume of our common shares traded on NASDAQ.
|
|
TSX
|
NASDAQ
|
||||||
|
|
(Cdn$ per share)
|
(U.S.$ per share)
|
||||||
|
Date
|
High
|
Low
|
Close
|
Volume
Traded
|
High
|
Low
|
Close
|
Volume
Traded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jul-16
|
$2.40
|
$1.97
|
$2.36
|
240,500
|
$1.85
|
$1.53
|
$1.84
|
2,499,500
|
|
Aug-16
|
$2.61
|
$2.23
|
$2.30
|
255,300
|
$2.06
|
$1.71
|
$1.76
|
3,313,300
|
|
Sep-16
|
$2.95
|
$2.21
|
$2.75
|
393,300
|
$2.34
|
$1.69
|
$2.10
|
5,764,800
|
|
Oct-16
|
$4.40
|
$2.75
|
$3.74
|
1,058,000
|
$3.33
|
$2.08
|
$2.77
|
19,519,200
|
|
Nov-16
|
$4.50
|
$3.28
|
$3.70
|
571,000
|
$3.35
|
$2.44
|
$2.79
|
6,246,000
|
|
Dec-16
|
$4.09
|
$3.50
|
$3.79
|
205,600
|
$3.05
|
$2.63
|
$2.88
|
4,127,700
|
|
Jan-17
|
$3.91
|
$3.24
|
$3.65
|
220,800
|
$2.96
|
$2.46
|
$2.75
|
3,614,500
|
|
Feb-17
|
$4.05
|
$2.78
|
$3.35
|
497,100
|
$3.12
|
$2.11
|
$2.53
|
11,874,700
|
|
Mar
-17
|
$3.57
|
$2.87
|
$3.32
|
243,100
|
$2.69
|
$2.19
|
$2.50
|
4,292,200
|
|
Apr
-17
|
$3.33
|
$2.48
|
$2.89
|
176,100
|
$2.50
|
$1.81
|
$2.11
|
3.499,200
|
|
May
-17
|
$3.05
|
$2.57
|
$2.75
|
105,200
|
$2.57
|
$1.88
|
$1.89
|
5,596,200
|
|
June
-17
|
$3.50
|
$2.56
|
$2.57
|
261,600
|
$2.27
|
$1.85
|
$2.09
|
2,669,900
|
|
July 1
to
July 7
-17
|
$3.25
|
$3.00
|
$3.07
|
38,600
|
$2.50
|
$2.17
|
$2.39
|
1,211,800
|
During the 12 month
period prior to the date of this prospectus, the Company has issued
common shares, or securities convertible into common shares, as
follows:
In November 2013,
we entered into an equity distribution agreement with Roth Capital
Partners, LLC, or Roth, pursuant to which we originally could, from
time to time, sell up to 5,305,484 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 the 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. 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 the NASDAQ or otherwise at market
prices prevailing at the time of sale or as determined by us.
We are not required to sell shares under the equity distribution
agreement. We will 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. Any
sales of shares under our at-the market offering program will be
made pursuant to an effective shelf registration statement on Form
F-3 filed with the SEC. We have also agreed to reimburse Roth for
certain expenses relating to the offering. As of July 7, 2017, we
have issued and sold an aggregate of 4,255,111 common shares with
an aggregate offering price of $12,837,173 under the at-the-market
program, including 1,338,568 common shares with an aggregate
offering price of $3,427,319 during the 12-month period prior to
the date of this prospectus. Roth received aggregate compensation
of $94,585 in connection with such sales. We currently may offer
and sell our common shares with an aggregate purchase price of up
to $3,962,827 pursuant to the at-the-market program (or such lesser
amount as may then be permitted under applicable exchange rules and
securities laws and regulations, such amount we currently can offer
and sell being limited to approximately $2.5 million). There can be
no assurance that any additional shares will be sold under our
at-the-market program.
During the 12-month
period prior to the date of this prospectus, warrants to purchase
an aggregate of 445,532 common shares were exercised.
During the 12-month
period prior to the date of this prospectus, 460,000 options were
granted and 34,500 options were exercised.
During the 12 month
period prior to the date of this prospectus, a total of 13,290
deferred share units were granted.
During the 12-month
period prior to the date of this prospectus, nil restricted share
units were granted.
40
DIVIDEND
POLICY
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 Company may
issue warrants to purchase common shares or preference shares. This
section describes the general terms that will apply to any warrants
issued pursuant to this prospectus. Warrants may be offered
separately or together with other securities and may be attached to
or separate from any other securities.
Unless the
applicable prospectus supplement otherwise indicates, each series
of warrants will be issued under a separate warrant indenture to be
entered into between the Company and one or more banks or trust
companies acting as warrant agent. The warrant agent will act
solely as the agent of the Company and will not assume a
relationship of agency with any holders of warrant certificates or
beneficial owners of warrants.
The applicable
prospectus supplement will include details of the warrant
indentures, if any, governing the warrants being offered. The
specific terms of the warrants, and the extent to which the general
terms described in this section apply to those warrants, will be
set out in the applicable prospectus supplement. The prospectus
supplement relating to any warrants the Company offers will
describe the warrants and the specific terms relating to the
offering. The description will include, where
applicable:
●
the designation and
aggregate number of warrants;
●
the price at which
the warrants will be offered;
●
the currency or
currencies in which the warrants will be offered;
●
the date on which
the right to exercise the warrants will commence and the date on
which the right will expire;
●
the designation,
number and terms of the common shares or preference shares, as
applicable, that may be purchased upon exercise of the warrants,
and the procedures that will result in the adjustment of those
numbers;
●
the exercise price
of the warrants;
●
the designation and
terms of the securities, if any, with which the warrants will be
offered, and the number of warrants that will be offered with each
Security;
●
if the warrants are
issued as a unit with another Security, the date, if any, on and
after which the warrants and the other Security will be separately
transferable;
●
any minimum or
maximum amount of warrants that may be exercised at any one
time;
●
any terms,
procedures and limitations relating to the transferability,
exchange or exercise of the warrants;
●
whether the
warrants will be subject to redemption or call and, if so, the
terms of such redemption or call provisions;
●
material United
States and Canadian federal income tax consequences of owning the
warrants; and
●
any other material
terms or conditions of the warrants.
41
Warrant
certificates will be exchangeable for new warrant certificates of
different denominations at the office indicated in the prospectus
supplement. Prior to the exercise of their warrants, holders of
warrants will not have any of the rights of holders of the
securities subject to the warrants. The Company may amend the
warrant indenture(s) and the warrants, without the consent of the
holders of the warrants, to cure any ambiguity, to cure, correct or
supplement any defective or inconsistent provision, or in any other
manner that will not prejudice the rights of the holders of
outstanding warrants, as a group.
The Company will
provide an initial Canadian purchaser of warrants with a
contractual right of rescission against the Company following the
issuance of common shares or preference shares, as the case may be,
to such purchaser, entitling the purchaser to receive the amount
paid for the warrants upon surrender of the common shares or
preference shares, as the case may be, if this prospectus, the
applicable prospectus supplement, and any amendment thereto,
contains a misrepresentation, provided such remedy for rescission
is exercised within 180 days of the date the warrants are issued.
This right of rescission does not extend to holders of warrants who
acquire such warrants from an initial purchaser, on the open market
or otherwise, or to initial purchasers who acquire warrants in the
United States.
DESCRIPTION OF
SUBSCRIPTION RECEIPTS
The Company may
issue subscription receipts, separately or together, with common
shares, preference shares or warrants, as the case may be. The
subscription receipts will be issued under a subscription receipt
agreement. This section describes the general terms that will apply
to any subscription receipts that may be offered by the Company
pursuant to this prospectus.
The applicable
prospectus supplement will include details of the subscription
receipt agreement covering the subscription receipts being offered.
A copy of the subscription receipt agreement relating to an
offering of subscription receipts will be filed by the Company with
securities regulatory authorities in Canada and the United States
after it has been entered into by the Company. The specific terms
of the subscription receipts, and the extent to which the general
terms described in this section apply to those subscription
receipts, will be set forth in the applicable prospectus
supplement. This description will include, where
applicable:
●
the number of
subscription receipts;
●
the price at
which the subscription receipts will be offered and whether the
price is payable in installments;
●
conditions to
the exchange of subscription receipts into common shares,
preference shares or warrants, as the case may be, and the
consequences of such conditions not being satisfied;
●
the
procedures for the exchange of the subscription receipts into
common shares, preference shares or warrants;
●
the number of
common shares, preference shares or warrants that may be exchanged
upon exercise of each subscription receipt;
●
the
designation and terms of any other securities with which the
subscription receipts will be offered, if any, and the number of
subscription receipts that will be offered with each
Security;
●
the dates or
periods during which the subscription receipts may be exchanged
into common shares, preference shares or warrants;
●
terms
applicable to the gross or net proceeds from the sale of the
subscription receipts plus any interest earned
thereon;
●
material
United States and Canadian federal income tax consequences of
owning the subscription receipts;
42
●
any other
rights, privileges, restrictions and conditions attaching to the
subscription receipts; and
●
any other
material terms and conditions of the subscription
receipts.
Subscription
receipt certificates will be exchangeable for new subscription
receipt certificates of different denominations at the office
indicated in the prospectus supplement. Prior to the exchange of
their subscription receipts, holders of subscription receipts will
not have any of the rights of holders of the securities subject to
the subscription receipts.
Under the
subscription receipt agreement, a Canadian purchaser of
subscription receipts will have a contractual right of rescission
following the issuance of common shares, preference shares or
warrants, as the case may be, to such purchaser, entitling the
purchaser to receive the amount paid for the subscription receipts
upon surrender of the common shares, preference shares or warrants,
as the case may be, if this prospectus, the applicable prospectus
supplement, and any amendment thereto, contains a
misrepresentation, provided such remedy for rescission is exercised
within 180 days of the date the subscription receipts are issued.
This right of rescission does not extend to holders of subscription
receipts who acquire such subscription receipts from an initial
purchaser, on the open market or otherwise, or to initial
purchasers who acquire subscription receipts in the United
States.
DESCRIPTION OF
SUBSCRIPTION RIGHTS
We
may issue rights to purchase our common shares, preference shares,
warrants, units and/or other securities described in this
prospectus or any combination thereof, as the case may be. The
rights may or may not be transferable by the persons purchasing or
receiving the rights. In connection with any rights offering, we
may enter into a standby underwriting or other arrangement with one
or more underwriters or other persons pursuant to which such
underwriters or other persons would purchase any offered securities
remaining unsubscribed for after such rights offering. In
connection with a rights offering to holders of our capital stock a
prospectus supplement will be distributed to such holders on the
record date for receiving rights in the rights offering set by
us.
We
will file as exhibits to the registration statement of which this
prospectus is a part, or will incorporate by reference from a
report on Form 6-K that we file with the SEC, forms of the
subscription rights, standby underwriting agreement or other
agreements, if any. The prospectus supplement relating to any
rights that we offer will include specific terms relating to the
offering, including, among other matters:
|
●
the
date of determining the security holders entitled to the rights
distribution;
|
|||
|
●
the
aggregate number of rights issued and the aggregate amount of
securities purchasable upon exercise of the rights;
|
|||
|
●
the
exercise price;
|
|||
|
●
the
conditions to completion of the rights offering;
|
|||
|
●
the
date on which the right to exercise the rights will commence and
the date on which the rights will expire; and
|
|||
|
●
any
applicable federal income tax considerations.
|
Each
right would entitle the holder of the rights to purchase the
principal amount of securities at the exercise price set forth in
the applicable prospectus supplement. Rights may be exercised at
any time up to the close of business on the expiration date for the
rights provided in the applicable prospectus supplement. After the
close of business on the expiration date, all unexercised rights
will become void.
Holders
may exercise rights as described in the applicable prospectus
supplement. Upon receipt of payment and the rights certificate
properly completed and duly executed at the corporate trust office
of the rights agent, if any, or any other office indicated in the
prospectus supplement, we will, as soon as practicable, forward the
securities purchasable upon exercise of the rights. If less
than all of the rights issued in any rights offering are exercised,
we may offer any unsubscribed securities directly to persons other
than stockholders, to or through agents, underwriters or dealers or
through a combination of such methods, including pursuant to
standby underwriting arrangements, as described in the applicable
prospectus supplement.
43
The following
description of the terms of the units sets forth certain general
terms and provisions of the units to which any prospectus
supplement many relate. We may issue units comprised of one or
more of the other securities described in this prospectus in any
combination. Each unit will be issued so that the holder of
the unit is also the holder of each Security included in the
unit. Thus, the holder of a unit will have the rights and
obligations of a holder of each included Security. The unit
agreement under which a unit is issued may provide that the
securities included in the unit may not be held or transferred
separately, at any time or at any time before a specified
date.
The applicable
prospectus supplement may describe:
●
the designation and
terms of the units and of the securities comprising the units,
including whether and under what circumstances those securities may
be held or transferred separately;
●
any
provisions for the issuance, payment, settlement, transfer or
exchange of the units or of the securities comprising the units;
and
●
whether the
units will be issued in fully registered or global
form.
The applicable
prospectus supplement will describe the terms of any
units. The preceding description and any description of units
in the applicable prospectus supplement does not purport to be
complete and is subject to and is qualified in its entirety by
reference to the unit agreement and, if applicable, collateral
arrangements and depositary arrangements relating to such
units.
The applicable
prospectus supplement may describe certain U.S. federal income tax
considerations generally applicable to the purchase, holding and
disposition of the securities by an investor who is a U.S. Holder
(as defined below), including, to the extent applicable, certain
U.S. federal income tax rules pertaining to capital gains and
ordinary income treatment, original issue discount, whether or not
we will be considered a passive foreign investment company (and if
so, the tax consequences to a United States shareholder), backup
withholding and the foreign tax credit, and certain U.S. federal
income tax consequences relating to securities payable in a
currency other than U.S. dollars or containing early redemption
provisions or other special terms.
The following
discussion is a general summary of certain material U.S. federal
income tax considerations applicable to a U.S. Holder (as defined
below) arising from and relating to the acquisition, ownership, and
disposition of common shares and preference shares (the common
shares and preference shares being collectively referred to as the
“shares”), warrants and units acquired pursuant to this
document.
For purposes of
this summary, the term “U.S. Holder” means a beneficial
owner of shares or warrants acquired pursuant to this offering that
is any of the following for U.S. federal income tax
purposes:
●
an individual who
is a citizen or resident of the U.S. or someone treated as a U.S.
citizen or resident for U.S. federal income tax
purposes;
●
a corporation (or
other entity taxable as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the U.S.,
any state thereof or the District of Columbia or otherwise
considered a U.S. domestic corporation for U.S. federal income tax
purposes;
●
an estate whose
income is subject to U.S. federal income taxation regardless of its
source; or
44
●
a trust that
(1) is subject to the primary supervision of a court within the
U.S. and the control of one or more U.S. persons for all
substantial decisions or (2) was in existence on August 20, 1996
and has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person.
For purposes of
this summary, a “non-U.S. Holder” is a beneficial owner
of shares or warrants that is not a U.S. Holder. This
summary does not address the U.S. federal income tax consequences
relevant to non-U.S. Holders arising from and relating to the
acquisition, ownership, and disposition of shares or
warrants.
This summary is for
general information purposes only and does not purport to be a
complete discussion of all of the potential U.S. federal income tax
considerations that may be relevant to a U.S. Holder arising from
and relating to the acquisition, ownership, and disposition of
shares or warrants. In addition, this summary does not take into
account the individual facts and circumstances of any particular
U.S. Holder that may affect the U.S. federal income tax
consequences to such U.S. Holder, including specific tax
consequences to a U.S. Holder under an applicable tax
treaty. Accordingly, this summary is not intended to be, and
should not be construed as, legal or U.S. federal income tax advice
with respect to any U.S. Holder. This summary does not address
the U.S. federal alternative minimum tax, U.S. federal estate and
gift tax, U.S. state and local tax, and foreign tax consequences
relating to U.S. Holders regarding the acquisition, ownership and
disposition of shares or warrants. Each prospective U.S. Holder
should consult its own tax advisor regarding the U.S. federal tax,
U.S. federal alternative minimum tax, U.S. federal estate and gift
tax, U.S. state and local tax, and foreign tax consequences to U.S.
Holders relating to the acquisition, ownership, and disposition of
shares or warrants.
No legal opinion
from U.S. legal counsel or ruling from the Internal Revenue Service
(the “IRS”) or any other federal, state or local agency
has been requested, or will be obtained, regarding any of the tax
issues affecting the Company or its U.S. Holders. This summary
is not binding on the IRS, and the IRS is not precluded from taking
a position that is different from, and contrary to, the positions
taken in this summary. In addition, because the authorities on
which this summary is based are subject to various interpretations,
the IRS and the U.S. courts could disagree with one or more of the
conclusions described in this summary.
This summary is
based on current provisions of the Internal Revenue Code of 1986,
as amended (the “Code”), Treasury Regulations
promulgated under the Code by the U.S. Treasury Department (whether
final, temporary, or proposed, the “Treasury
Regulations”), published rulings of the IRS, published
administrative interpretations and official pronouncements by the
IRS, and U.S. court decisions that are applicable and, in each
case, as in effect and available, as of the date of this
document. Any of the authorities on which this summary is
based could be changed in a material and adverse manner at any
time, and any such change could be applied on a retroactive or
prospective basis which could affect the U.S. federal income tax
considerations described in this summary. This summary also
does not discuss the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be
applied on a retroactive or prospective basis. Specifically, the
below does not address the impact current U.S. federal income tax
reform proposals may have on the taxation of the Company, its
shareholders, and the rules and laws applicable to passive foreign
investment companies as discussed herein. No assurance can be given
that the IRS would not assert, or that a court would not sustain, a
position contrary to any of the tax consequences described
below.
This summary does
not address the U.S. federal income tax considerations applicable
to U.S. Holders that are subject to special provisions under the
Code, including, but not limited to, the following: (a)
U.S. Holders that are qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) U.S.
Holders that are financial institutions, underwriters, insurance
companies, real estate investment trusts, or regulated investment
companies;
45
(c) U.S. Holders
that are broker-dealers, dealers, or traders in securities; (d)
U.S. Holders that have a “functional currency” other
than the U.S. dollar; (e) U.S. Holders that own shares or warrants
as part of a straddle, hedging transaction, conversion transaction,
constructive sale, or other arrangement involving more than one
position; (f) U.S. Holders that acquired shares or warrants in
connection with the exercise of employee stock options or otherwise
as compensation for services; (g) U.S. Holders that hold shares or
warrants other than as a capital asset within the meaning of
Section 1221 of the Code (generally, property held for investment
purposes); or (h) U.S. Holders that own or have owned (directly,
indirectly, or by attribution) 10% or more of the total combined
voting power of the outstanding shares of the Company. This
summary also does not address the U.S. federal income tax
considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons
that have been, are, or will be residents or deemed to be residents
in Canada for purposes of the Income Tax Act (Canada) (the
“Tax Act”); (c) persons that use or hold, will use or
hold, or that are or will be deemed to use or hold shares or
warrants in connection with carrying on a business in Canada; (d)
persons whose shares or warrants constitute “taxable Canadian
property” under the Tax Act; or (e) persons that have a
permanent establishment in Canada for the purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to
special provisions under the Code, including, but not limited to,
U.S. Holders described immediately above, should consult their own
tax advisor regarding the U.S. federal income tax, U.S. federal
alternative minimum tax, U.S. federal estate and gift, U.S. state
and local, and foreign tax consequences relating to the
acquisition, ownership and disposition of shares or
warrants.
If an entity or
arrangement that is treated as a partnership (or other
“pass-through” entity) for U.S. federal income tax
purposes holds shares or warrants, the U.S. federal income tax
consequences to such beneficial owner generally will depend on the
activities of the partnership and the status of such
partner. This summary does not address the tax consequences to
any such beneficial owner. A U.S. Holder of shares or warrants that
is a partnership and partners in such partnership should consult
their own tax advisors regarding the U.S. federal income tax
consequences arising from and relating to the acquisition,
ownership, and disposition of shares or warrants.
THIS
SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER
IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS WITH RESPECT TO ITS
PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE
LAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
Allocation
of Purchase Price and Characterization of a Unit
The applicable
prospectus supplement will describe the terms of any
units. For purposes of this summary, it is assumed a unit will
be comprised of a common share and a warrant to purchase common
shares. If the components of a unit are immediately separable,
the purchaser of a unit generally will be treated, for U.S. federal
income tax purposes, as the owner of the underlying share and
warrant components of the unit. However, there is no authority
addressing the treatment, for U.S. federal income tax purposes, of
securities with terms substantially the same as the units, and,
therefore, that treatment is not entirely clear. Each such unit
should be treated for U.S. federal income tax purposes as an
investment unit consisting of one share and one warrant to purchase
one share. For U.S. federal income tax purposes, each purchaser of
such a unit generally must allocate the purchase price of a unit
between the share and the warrant that comprise the unit based on
the relative fair market value of each at the time of issuance. The
price allocated to each share and the warrant generally will be the
holder’s tax basis in such share or warrant, as the case may
be.
The foregoing
description of a holder’s purchase price allocation is not
binding on the IRS or the courts. Because there are no authorities
that directly address instruments that are similar to the units, no
assurance can be given that the IRS or the courts will agree with
the characterization described above or the discussion below.
Accordingly, each holder is advised to consult its own tax advisor
regarding the risks associated with an investment in a unit
(including alternative characterizations of a unit) and regarding
an allocation of the purchase price between the share and the
warrant that comprise a unit. The balance of this discussion
assumes that the characterization of the units described above is
respected for U.S. federal income tax purposes.
Passive
Foreign Investment Company Considerations
Special, generally
unfavorable, U.S. federal income tax rules apply to the ownership
and disposition of the stock or warrants of a passive foreign
investment company, or PFIC. As discussed below, however, a U.S.
Holder of our shares (but not our warrants) may be able to mitigate
these consequences by making a timely and effective election to
treat the Company as a QEF or by making a timely and effective
mark-to-market election with respect to its common
shares.
46
For U.S. federal
income tax purposes, a foreign corporation is classified as a PFIC
for each taxable year in which, applying the relevant look-through
rules, either:
●
at least 75% of its
gross income for the taxable year consists of specified types of
“passive” income (referred to as the “income
test”); or
●
at least 50%
of the average value of its assets during the taxable year is
attributable to certain types of assets that produce passive income
or are held for the production of passive income (referred to as
the “asset test”).
For purposes of the
income and asset tests, if a foreign corporation owns directly or
indirectly at least 25% (by value) of the stock of another
corporation, that foreign corporation will be treated as if it held
its proportionate share of the assets of the other corporation and
received its proportionate share of the income of that other
corporation. Also, for purposes of the income and asset tests,
passive income does not include any income that is an interest,
dividend, rent or royalty payment if it is received or accrued from
a related person to the extent that amount is properly allocable to
the active income of the related person. Under applicable
attribution rules, if the Company is a PFIC, U.S. Holders of shares
will be treated as holding stock of the Company’s
subsidiaries that are PFICs in certain circumstances. In these
circumstances, certain dispositions of, and distributions on, stock
of such subsidiaries may have consequences for U.S. Holders under
the PFIC rules.
Although the matter
is not free from doubt, we believe that we were not a PFIC during
our 2016 taxable year and may not be a PFIC during our 2017 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 2017 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
2016 taxable year). Absent one of the elections described below, if
we are a PFIC for any taxable year during which a U.S. Holder holds
our shares, we generally will continue to be treated as a PFIC
subject to the regime described below with respect to such U.S.
Holder, 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 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 shares will depend on whether such
U.S. Holder makes a QEF or mark-to-market election. Unless
otherwise provided by the IRS, a U.S. Holder of our shares is
generally required to file an informational return annually to
report its ownership interest in the PFIC during any year in which
we are a PFIC.
U.S. HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL
APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY AND IN THE
FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A
PFIC.
The “No Election” Alternative – Taxation of
Excess Distributions
If we are
classified as a PFIC for any year during which a U.S. Holder has
held shares or warrants and, in the case of our shares, that U.S.
Holder has not made a QEF Election or a mark-to-market election,
special rules may subject that U.S. Holder to increased tax
liability, including loss of favorable capital gains rates and the
imposition of an interest charge upon the sale or other disposition
of the shares or warrants or upon the receipt of any excess
distribution (as defined below). Under these rules:
●
the gain, if any,
realized on such disposition will be allocated ratably over the
U.S. Holder’s holding period;
47
●
the amount of
gain allocated to the current taxable year and any year prior to
the first year in which we are a PFIC will be taxed as ordinary
income in the current year;
●
the amount of
gain allocated to each of the other taxable years will be subject
to tax at the highest ordinary income tax rate in effect for that
year; and
●
an interest
charge for the deemed deferral benefit will be imposed with respect
to the resulting tax attributable to each of the other taxable
years.
These rules will
continue to apply to the U.S. Holder even after we cease to meet
the definition of a PFIC, unless the U.S. Holder elects to be
treated as having sold our shares on the last day of the last
taxable year in which we qualified as a PFIC.
An “excess
distribution,” in general, is any distribution on shares
received in a taxable year by a U.S. Holder that is greater than
125% of the average annual distributions received by that U.S.
Holder in the three preceding taxable years or, if shorter, that
U.S. Holder’s holding period for shares.
Any portion of a
distribution paid to a U.S. Holder that does not constitute an
excess distribution will be treated as ordinary dividend income to
the extent of our current and accumulated earnings and profits (as
computed for U.S. federal income tax purposes). Such dividends
generally will not qualify for the dividends-received deduction
otherwise available to U.S. corporations. Any amounts treated as
dividends paid by a PFIC generally will not constitute
“qualified dividend income” within the meaning of
Section 1(h)(11) of the Code and will, therefore, not be eligible
for the preferential 20% rate for such income generally in effect
under current law. Any such amounts in excess of our current and
accumulated earnings and profits will be applied against the U.S.
Holder’s tax basis in the shares and, to the extent in excess
of such tax basis, will be treated as gain from a sale or exchange
of such shares. It is possible that any such gain may be treated as
an excess distribution.
The QEF Election Alternative
A U.S. Holder of
shares (but not warrants) who elects (an “Electing U.S.
Holder”) under Section 1295 of the Code, in a timely manner
to treat us as a QEF would generally include in gross income (and
be subject to current U.S. federal income tax on) its pro rata
share of (a) the Company’s ordinary earnings, as ordinary
income, and (b) our net capital gains, as long-term capital gain.
An Electing U.S. Holder will generally be subject to U.S. federal
income tax on such amounts for each taxable year in which we are
classified as a PFIC, regardless of whether such amounts are
actually distributed to the Electing U.S. Holder. An Electing U.S.
Holder may further elect, in any given taxable year, to defer
payment of U.S. federal income tax on such amounts, subject to
certain limitations. However, if deferred, the taxes will be
subject to an interest charge.
A U.S. Holder may
not make a QEF election with respect to its warrants to acquire our
shares. As a result, if a U.S. Holder sells or otherwise disposes
of such warrants (other than upon exercise of such warrants), 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 shares (or has previously made a QEF election with
respect to our shares), the QEF election will apply to the newly
acquired shares, but the adverse tax consequences relating to PFIC
shares, adjusted to take into account the current income inclusions
resulting from the QEF election, will continue to apply with
respect to such newly acquired 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 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 shares acquired upon the exercise of the
warrants for purposes of the PFIC rules.
A U.S. Holder may
make a QEF Election only if the Company furnishes the U.S. Holder
with certain tax information. If the Company should determine
that it is a PFIC, it is anticipated that it will attempt to timely
and accurately disclose such information to its U.S. Holders and
provide U.S. Holders with information reasonably required to make
such election.
48
A U.S. Holder that
makes a QEF Election with respect to the Company generally (a) may
receive a tax-free distribution from the Company to the extent that
such distribution represents “earnings and profits” of
the Company that were previously included in income by the U.S.
Holder because of such QEF Election and (b) will adjust such U.S.
Holder’s tax basis in his, her or its shares to reflect the
amount included in income (resulting in an increase in basis) or
allowed as a tax-free distribution (resulting in a decrease in
basis) because of the QEF Election.
Similarly, if any
of our non-U.S. subsidiaries were classified as PFICs, a U.S.
Holder that makes a timely QEF Election with respect to any of our
subsidiaries would be subject to the QEF rules as described above
with respect to the Holder’s pro rata share of the ordinary
earnings and net capital gains of any of our subsidiaries. Our
earnings (or earnings of any of our subsidiaries) attributable to
distributions from any of our subsidiaries that had previously been
included in the income of an Electing U.S. Holder under the QEF
rules would generally not be taxed to the Electing U.S. Holder
again.
Upon the sale or
other disposition of shares, an Electing U.S. Holder who makes a
QEF Election for the first taxable year in which he owns shares
will recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the net
amount realized on the disposition and the U.S. Holder’s
adjusted tax basis in the shares. Such gain or loss will be
long-term capital gain or loss if the U.S. Holder’s holding
period in the shares is more than one year, otherwise it will be
short-term capital gain or loss. The deductibility of capital
losses is subject to certain limitations. A U.S. Holder’s
gain realized upon the disposition of shares generally will be
treated as U.S. source income, and losses from the disposition
generally will be allocated to reduce U.S. source
income.
A QEF Election must
be made in a timely manner as specified in applicable Treasury
Regulations. Generally, the QEF Election must be made by filing the
appropriate QEF election documents at the time such U.S. Holder
timely files its U.S. federal income tax return for the first
taxable year of the Company during which it was, at any time, a
PFIC.
Each U.S. Holder
should consult its own tax advisor regarding the availability of,
procedure for making, and consequences of a QEF Election with
respect to the Company.
Mark-to-Market Election Alternative
Assuming that our
common shares are treated as marketable stock (as defined for these
purposes), a U.S. Holder that does not make a QEF Election may
avoid the application of the excess distribution rules, at least in
part, by electing, under Section 1296 of the Code, to mark the
common shares to market annually. Consequently, the U.S. Holder
will generally recognize as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year
between the fair market value of its common shares and the U.S.
Holder’s adjusted tax basis in the common shares. Any
mark-to-market loss is treated as an ordinary deduction, but only
to the extent of the net mark-to-market gain that the Holder has
included pursuant to the election in prior tax years. Any gain on a
disposition of our common shares by an electing U.S. Holder would
be treated as ordinary income. The electing U.S. Holder’s
basis in its common shares would be adjusted to reflect any of
these income or loss amounts. Currently, a mark-to-market
election may not be made with respect to warrants. We do not
anticipate that the preference shares will be treated as marketable
stock for these purposes.
For purposes of
making this election, stock of a foreign corporation is
“marketable” if it is “regularly traded” on
certain “qualified exchanges”. Under applicable
Treasury Regulations, a “qualified exchange” includes a
national securities exchange that is registered with the SEC or the
national market system established pursuant to Section 11A of the
U.S. Exchange Act, and certain foreign securities exchanges.
Currently, our common shares are traded on a “qualified
exchange.” Under applicable Treasury Regulations, PFIC stock
traded on a qualified exchange is “regularly traded” on
such exchange for any calendar year during which such stock is
traded, other than in de
minimis quantities, on at least 15 days during
each calendar quarter. Special rules apply if an election is made
after the beginning of the taxpayer’s holding period in PFIC
stock.
49
To the extent
available, a mark-to-market election applies to the taxable year in
which such mark-to-market election is made and to each subsequent
taxable year, unless the Company’s common shares cease to be
“marketable stock” or the IRS consents to revocation of
such election. In addition, a U.S. Holder that has made a
mark-to-market election does not include mark-to-market gains, or
deduct mark-to-market losses, for years when the Company ceases to
be treated as a PFIC.
The mark-to-market
rules generally do not appear to prevent the application of the
excess distribution rules in respect of stock of any of our
subsidiaries in the event that any of our subsidiaries were
considered PFICs. Accordingly, if Intellipharmaceutics and any of
our subsidiaries were both considered PFICs and a U.S. Holder made
a mark-to-market election with respect to its common shares, the
U.S. Holder may remain subject to the excess distribution rules
described above with respect to its indirectly owned shares of
subsidiary stock.
U.S.
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
POSSIBLE APPLICABILITY OF THE PFIC RULES AND THE AVAILABILITY OF,
PROCEDURES FOR MAKING, AND CONSEQUENCES OF A QEF ELECTION OR
MARK-TO-MARKET ELECTION WITH RESPECT TO THE COMPANY’S
SHARES.
Ownership
and Disposition of Shares and Warrants to the Extent that the PFIC
Rules do not Apply
Distributions on Shares
A U.S. Holder that
receives a distribution, including a constructive distribution,
with respect to a share will be required to include the amount of
such distribution in gross income as a dividend (without reduction
for any Canadian income tax withheld from such distribution) to the
extent of the current or accumulated “earnings and
profits” of the Company, as computed for U.S. federal income
tax purposes. To the extent that a distribution exceeds the
current and accumulated “earnings and profits” of the
Company, such distribution will be treated first as a tax-free
return of capital to the extent of a U.S. Holder’s tax basis
in the shares and thereafter as gain from the sale or exchange of
such shares. (See “Sale or Other Taxable Disposition of
Shares” below). However, the Company may not maintain
the calculations of earnings and profits in accordance with U.S.
federal income tax principles, and each U.S. Holder should (unless
advised to the contrary) therefore assume that any distribution by
the Company with respect to the shares will constitute ordinary
dividend income. Dividends received on shares generally will
not be eligible for the “dividends received
deduction”. The dividend rules are complex, and each
U.S. Holder should consult its own tax advisor regarding the
application of such rules.
The terms of a
warrant may provide for an adjustment to the number of shares for
which the warrant may be exercised or to the exercise price of the
warrant in certain events. An adjustment which has the effect of
preventing dilution generally is not taxable. However, the U.S.
Holders of the 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 an increase in the
number of shares that would be obtained upon exercise) as a result
of a distribution of cash to the holders of our shares which is
taxable to the U.S. Holders of such shares as described under
“Distributions on Shares” 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
received a cash distribution from us equal to the fair market value
of such increased interest.
Sale or Other Taxable Disposition of Shares
Upon the sale or
other taxable disposition of common shares, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the
difference between the U.S. dollar value of cash received plus the
fair market value of any property received and such U.S.
Holder’s tax basis in such shares sold or otherwise disposed
of. A U.S. Holder’s tax basis in shares generally will
be such Holder’s U.S. dollar cost for such
shares.
Gain or loss
recognized on such sale or other disposition generally will be
long-term capital gain or loss if, at the time of the sale or other
disposition, the shares have been held for more than one year. The
long-term capital gains realized by non-corporate U.S. Holders are
generally subject to a lower marginal U.S. federal income tax rate
than ordinary income other than qualified dividend income, as
defined above. Currently, the maximum rate on long-term capital
gains is 20%, although the actual rates may be higher due to the
phase out of certain tax deductions, exemptions and credits.
However, given the uncertain economic conditions in the United
States and the size of the federal deficit, tax rates are subject
to change and prospective U.S. Holders should consult their tax
advisors. The deductibility of losses may be subject to
limitations.
50
Warrants
Generally, no U.S.
federal income tax will be imposed upon the U.S. Holder of a
warrant upon exercise of such warrant to acquire our shares. A
U.S. Holder’s tax basis in a warrant will generally be the
amount of the purchase price that is allocated to the
warrant. Upon exercise of a warrant, the tax basis of the new
shares would be equal to the sum of the tax basis of the warrants
in the hands of the U.S. Holder plus the exercise price paid, and
the holding period of the new shares would begin on the date that
the warrants are exercised. If a warrant lapses without exercise,
the U.S. Holder will generally realize a capital loss equal to its
tax basis in the warrant. Prospective U.S. Holders should consult
their tax advisors regarding the tax consequences of acquiring,
holding and disposing of warrants.
The tax
consequences of a cashless exercise of a warrant are not clear
under current tax law. A cashless exercise may be tax-free, either
because the exercise is not a gain realization event or because the
exercise is treated as a recapitalization for U.S. federal income
tax purposes. In either tax-free situation, a U.S. Holder’s
basis in the shares received would equal the U.S. holder’s
basis in the warrant. If the cashless exercise were treated as not
being a gain realization event, a U.S. Holder’s holding
period in the shares would be treated as commencing on the date
following the date of exercise of the warrant. If the cashless
exercise were treated as a recapitalization, the holding period of
the shares would include the holding period of the warrant. It is
also possible that a cashless exercise could be treated as a
taxable exchange in which gain or loss would be recognized. In such
event, a U.S. Holder could be deemed to have surrendered warrants
equal to the number of shares having a value equal to the exercise
price for the total number of warrants to be exercised. The U.S.
Holder would recognize capital gain or loss in an amount equal to
the difference between the fair market value of the shares
represented by the warrants deemed surrendered and the U.S.
Holder’s tax basis in the warrants deemed surrendered. In
this case, a U.S. Holder’s tax basis in the shares received
would equal the sum of the fair market value of the shares
represented by the warrants deemed surrendered and the U.S.
Holder’s tax basis in the warrants exercised. A U.S.
Holder’s holding period for the shares would commence on the
date following the date of exercise of the warrant. Due to the
absence of authority on the U.S. federal income tax treatment of a
cashless exercise, there can be no assurance 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.
Subscription
Rights
Receipt, Exercise, and Expiration of Rights
A U.S. Holder
generally should not recognize any gain or loss for U.S. federal
income tax purposes as a result of the receipt, exercise, or
expiration of subscription rights.
If the fair market
value of subscription rights when received by a U.S. Holder is less
than 15% of the fair market value of the common shares with respect
to which such subscription rights are received, the subscription
rights will have no basis unless the U.S. Holder affirmatively
elects to allocate its adjusted tax basis in its common shares
between its common shares and the subscription rights received in
proportion to their relative fair market values (as determined on
the date the subscription rights are received). A U.S. Holder must
make this election in its timely filed U.S. federal income tax
return for the taxable year in which the subscription rights are
received and once made, the election is irrevocable. If, at the
time of receipt, the fair market value of the subscription rights
is 15% or more of the fair market value of the common shares with
respect to which the subscription rights are received, a U.S.
Holder's adjusted tax basis in its common shares must be allocated
between its common shares and the subscription rights received in
proportion to their relative fair market values (as determined on
the date subscription rights are received). Any tax basis allocated
to subscription rights under these rules will be allocated back to
the common shares if the subscription rights expire
unexercised.
51
A U.S. Holder
generally will not realize gain or loss on the exercise of a
subscription right. A U.S. Holder's tax basis in a common share
acquired upon the exercise of a subscription right will be equal to
its adjusted tax basis in the subscription right plus the U.S.
dollar value exercise price determined at the spot rate on the date
of exercise. The holding period of a common share acquired upon the
exercise of a subscription right will begin with and include the
date of exercise. If a U.S. Holder receives the subscription rights
pursuant to the offering and such subscription rights expire, the
U.S. Holder generally will not recognize gain or loss. In addition,
any tax basis allocated to subscription rights under the rules
described in the preceding paragraph would be allocated back to the
common shares such that the tax bases of such common shares would
be the same as they were prior to the distribution of the
subscription rights.
Sale, Exchange, or Other Disposition of Subscription
Rights
Subject to the PFIC
rules discussed above, a U.S. Holder will recognize capital gain or
loss on the sale or other taxable disposition of subscription
rights in an amount equal to the difference between the U.S.
Holder's tax basis in the subscription rights, if any, and the U.S.
dollar value of the amount realized from the sale or other
disposition. A U.S. Holder's holding period in the subscription
rights will include its holding period in the common shares with
respect to which the subscription rights were distributed. If the
U.S. Holder's holding period for the subscription rights exceeds
one year, any gain or loss generally will be long-term capital gain
or loss. The deductibility of capital losses may be subject to
limitations.
The amount realized
on a sale or other disposition of a subscription right for an
amount in a currency other than the U.S. dollar (a "foreign
currency") will generally be the U.S. dollar value of this amount
on the date of sale or disposition (or in the case of cash basis
and electing accrual basis taxpayers, the settlement date, provided
that the subscription rights are traded on an established
securities market). On the settlement date, the U.S. Holder will
recognize U.S. source foreign currency gain or loss (taxable as
ordinary income or loss) equal to the difference, if any, between
the U.S. dollar value of the amount received based on the exchange
rate in effect on the date of sale or other disposition and the
settlement date. However, in the case of subscription rights traded
on an established securities market that are sold by a cash basis
U.S. Holder (or an accrual basis U.S. Holder that so elects), the
amount realized will be based on the exchange rate in effect on the
settlement date for the sale, and no exchange gain or loss will be
recognized at that time. If an accrual basis U.S. Holder makes the
election described above, it must be applied consistently from year
to year and cannot be revoked without the consent of the
IRS.
If any Canadian
taxes are imposed upon a gain from the sale or other disposition of
a right by a U.S. Holder, foreign tax credits may not be available
with respect to such Canadian taxes. U.S. Holders should consult
their own tax advisors regarding the potential imposition of any
Canadian taxes on any gain and the related U.S. federal income tax
consequences.
Additional
Considerations
Tax-Exempt Investors
Special
considerations apply to U.S. persons that are pension plans and
other investors that are subject to tax only on their unrelated
business taxable income. Such a tax-exempt investor’s income
from an investment in our shares or warrants generally will not be
treated as resulting in unrelated business taxable income under
current law, so long as such investor’s acquisition of shares
or warrants is not debt-financed. Tax-exempt investors should
consult their own tax advisors regarding an investment in our
shares or warrants.
Additional Tax on Passive Income
Certain
individuals, estates and trusts whose income exceeds certain
thresholds will generally be required to pay a 3.8% Medicare surtax
on the lesser of (1) the U.S. Holder’s “net investment
income” for the relevant taxable year and (2) the excess of
the U.S. Holder’s modified gross income for the taxable year
over a certain threshold (which, in the case of individuals, will
generally be between U.S.$125,000 and U.S. $250,000 depending on
the individual’s circumstances). A U.S. Holder’s
“net investment income” may generally include, among
other items, certain interest, dividends, gain, and other types of
income from investments, minus the allowable deductions that are
properly allocable to that gross income or net gain. U.S.
Holders are urged to consult with their own tax advisors regarding
the effect, if any, of this tax on their ownership and disposition
of shares or warrants. Under current proposed U.S. comprehensive
tax reform, the 3.8% Medicare surtax would be repealed. It is
unclear when, if at all, this proposal will be passed but such
passage would generally reduce the U.S. federal income taxation of
our shareholders.
52
Receipt of Foreign Currency
The amount of any
distribution paid to a U.S. Holder in foreign currency, or on the
sale, exchange or other taxable disposition of shares or warrants,
generally will be equal to the U.S. dollar value of such foreign
currency based on the exchange rate applicable on the date of
receipt (regardless of whether such foreign currency is converted
into U.S. dollars at that time). A U.S. Holder will have a
basis in the foreign currency equal to its U.S. dollar value on the
date of receipt. Any U.S. Holder who converts or otherwise
disposes of the foreign currency after the date of receipt may have
a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income
or loss for foreign tax credit purposes. Each U.S. Holder
should consult its own U.S. tax advisor regarding the U.S. federal
income tax consequences of receiving, owning, and disposing of
foreign currency.
Foreign Tax Credit
Subject to the PFIC
rules discussed above, a U.S. Holder that pays (whether directly or
through withholding) Canadian income tax with respect to dividends
paid on the shares generally will be entitled, at the election of
such U.S. Holder, to receive either a deduction or a credit for
such Canadian income tax paid. Generally, a credit will reduce a
U.S. Holder’s U.S. federal income tax liability on a
dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holder’s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and generally applies to
all foreign taxes paid (whether directly or through withholding) or
accrued by a U.S. Holder during a year.
Complex limitations
apply to the foreign tax credit, including the general limitation
that the credit cannot exceed the proportionate share of a U.S.
Holder’s U.S. federal income tax liability that such U.S.
Holder’s “foreign source” taxable income bears to
such U.S. Holder’s worldwide taxable income. In applying
this limitation, a U.S. Holder’s various items of income and
deduction must be classified, under complex rules, as either
“foreign source” or “U.S.
source”. Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose,
and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should generally be treated as U.S. source for
this purpose, except as otherwise provided in an applicable income
tax treaty or if an election is properly made under the
Code. However, the amount of a distribution with respect to
the shares that is treated as a “dividend” may be lower
for U.S. federal income tax purposes than it is for Canadian
federal income tax purposes, resulting in a reduced foreign tax
credit allowance to a U.S. Holder. In addition, this
limitation is calculated separately with respect to specific
categories of income. The foreign tax credit rules are
complex, and each U.S. Holder should consult its own U.S. tax
advisor regarding the foreign tax credit rules. It is unclear how
the proposed changes to the taxation of foreign entities under the
Code currently being deliberated in the U.S. will affect the
availability or calculation of foreign tax credits and any change
may have an adverse impact to the Company or our
shareholders.
Payments to Foreign Financial Institutions
The Hiring
Incentives to Restore Employment Act of March 2010, or the HIRE
Act, including the Foreign Account Tax Compliance Act, or FATCA,
provisions promulgated thereunder, generally provides that a 30%
withholding tax may be imposed on payments of U.S. source income
and proceeds from the sale of property that could give rise to U.S.
source interest or dividends to certain non-U.S. entities unless
such entities enter into an agreement with the IRS to disclose the
name, address and taxpayer identification number of certain U.S.
persons that own, directly or indirectly, interests in such
entities, as well as certain other information relating to such
interests. U.S. Holders are encouraged to consult with their
own tax advisors regarding the possible implications and
obligations of FATCA and the HIRE Act.
State and Local Tax
In addition to the
U.S. federal income tax discussed above, U.S. Holders may also be
subject to state and local income taxation for amounts received on
the disposition of common shares and on dividends received. Amounts
paid to U.S. Holders will not have state and local tax amounts
withheld from payments and U.S. Holders should consult with a tax
advisor regarding the state and local taxation implications of such
amounts received.
53
Information Reporting
In general, U.S.
Holders of shares are subject to certain information reporting
under the Code relating to their purchase and/or ownership of stock
of a foreign corporation such as the Company. Failure to
comply with these information reporting requirements may result in
substantial penalties.
For example,
recently enacted legislation generally requires 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, etc. Certain domestic entities that are
U.S. Holders may also be required to file Form 8938 in the near
future. U.S. Holders are urged to consult with their tax
advisors regarding their reporting obligations, including the
requirement to file IRS Form 8938.
In addition, in
certain circumstances, a U.S. Holder of shares who disposes of such
shares in a transaction resulting in the recognition by such Holder
of losses in excess of certain significant threshold amounts may be
obligated to disclose its participation in such transaction in
accordance with the Treasury Regulations governing tax shelters and
other potentially tax-motivated transactions or tax shelter
regulations. Potential purchasers of shares should consult their
tax advisors concerning any possible disclosure obligation under
the tax shelter rules with respect to the disposition of their
shares.
Backup Withholding
Generally,
information reporting requirements will apply to distributions on
our shares or proceeds on the disposition of our shares or warrants
paid within the U.S. (and, in certain cases, outside the U.S.) to
U.S. Holders. Such payments will generally be subject to
backup withholding tax at the rate of 28% if: (a) a U.S. Holder
fails to furnish such U.S. Holder’s correct U.S.
taxpayer identification number to the payor (generally on Form
W-9), as required by the Code and Treasury Regulations, (b) the IRS
notifies the payor that the U.S. Holder’s taxpayer
identification number is incorrect, (c) a U.S. Holder is notified
by the IRS that it has previously failed to properly report
interest and dividend income, or (d) a U.S. Holder fails to
certify, under penalty of perjury, that such U.S. Holder has
furnished its correct U.S. taxpayer identification number. However,
certain exempt persons generally are excluded from these
information reporting and backup withholding rules.
Backup withholding
is not an additional tax. Any amounts withheld under the U.S.
backup withholding tax rules will be allowed as a credit against a
U.S. Holder’s U.S. federal income tax liability, if any, or
will be refunded, if such U.S. Holder furnishes required
information to the IRS in a timely manner. Each U.S. Holder
should consult its own tax advisor regarding the backup withholding
rules.
CERTAIN
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
Taxation
The following
summary describes the principal Canadian federal income tax
considerations generally applicable to a purchaser of the
Company’s common shares pursuant to this offering who, for
purposes of the Income Tax
Act (Canada) (the “Canadian Tax Act”) and the
Canada – United States Tax
Convention (the “Treaty”) and at all relevant
times, is resident in the United States and was not and 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 Company’s common shares as capital property, does not use
or hold and is not deemed to use or hold the Company’s common
shares in or in the course of carrying on business in Canada and
who otherwise qualifies for the full benefit of the Treaty (a
“United States Holder”). Special rules which
are not discussed in this summary may apply to a United States
Holder that is a financial institution, as defined in the Canadian
Tax Act, or an insurer carrying on business in Canada and
elsewhere.
54
The 2017 Canadian
Federal Budget released on March 22, 2017 contained an indication
that the Canadian Federal Government intended to pursue signature
of the multilateral tax treaty that has been proposed by the
Organisation for Economic Co-operation and Development addressing
perceived tax treaty abuse (the “MLI”). Further to this
intention, on June 7, 2017, Canada signed the MLI, and intends to
take steps to complete the ratification and implementation of the
MLI in Canada. The provisions of the multilateral tax treaty are
not discussed herein. United States Holders should consult their
own tax advisors with respect to the potential application of the
multilateral tax treaty provisions to their particular
circumstances.
This following
summary is based on the current provisions of the Treaty, the
Canadian Tax Act and the regulations thereunder, all specific
proposals to amend the Canadian Tax Act and the regulations
announced by the Minister of Finance (Canada) prior to the date
hereof and the Company’s understanding of the administrative
practices published in writing by the Canada Revenue Agency prior
to the date hereof. This summary does not take into account or
anticipate any other changes in the governing law, whether by
judicial, governmental or legislative decision or action, nor does
it take into account the tax legislation or considerations of any
province, territory or non-Canadian (including U.S.) jurisdiction,
which legislation or considerations may differ significantly from
those described herein.
All amounts
relevant in computing a United States Holder’s liability
under the Canadian Tax Act are to be computed in Canadian currency
based on the relevant exchange rate applicable
thereto.
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 Company’s common shares 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
Company’s shares should consult their own tax advisors with
respect to their particular circumstances.
Dividends
on the Company’s 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. Pursuant to the Treaty, the
withholding tax rate on the gross amount of dividends paid or
credited to United States Holders is reduced to 15% or, in the case
of a United States 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.
Pursuant to the
Treaty, certain tax-exempt entities that are United States Holders
may be exempt from Canadian withholding taxes, including any
withholding tax levied in respect of dividends received on the
Company’s common shares.
Disposition
of the Company’s Common Shares
In general, a
United States Holder will not be subject to Canadian income tax on
capital gains arising on the disposition of the Company’s
common shares, unless such shares are “taxable Canadian
property” within the meaning of the Canadian Tax
Act. Generally, the shares of a corporation resident in
Canada will not be taxable Canadian property of a United States
Holder at the time of disposition unless at any time during the
60-month period immediately preceding the disposition, more than
50% of the value of the Company’s common shares was derived
directly or indirectly from properties that are “real or
immovable properties”, “Canadian resource
properties”, or “timber resource properties”,
within the meaning of the Canadian Tax Act. 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 United States
Holder upon the disposition of the Company’s common shares
should be exempt from tax under the Canadian Tax Act.
55
The consolidated
financial statements for the year ended November 30, 2016
incorporated by reference in this prospectus from our Annual Report
on Form 20-F for the year ended November 30, 2016, have been
audited by MNP LLP, an independent registered public accounting
firm, 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 years ended November 30, 2015 and 2014
incorporated in this prospectus by reference from our Annual Report
on Form 20-F for the year ended November 30, 2016, 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,
the Company may be exposed to claims and legal actions in the
normal course of business. As at February 28, 2017, and continuing
as at July 10, 2017, the Company is not aware of any pending or
threatened material litigation claims against the Company, other
than as described below.
In November 2016,
the Company filed an NDA for its Rexista™ product
candidate (abuse-deterrent oxycodone hydrochloride extended release
tablets), relying on the 505(b)(2) regulatory pathway, which
allowed the Company to reference data from Purdue Pharma L.P.'s
file for its OxyContin® extended release oxycodone
hydrochloride. The Rexista™ application was accepted by the
FDA for further review in February 2017. The Company certified to
the FDA that it believed that its Rexista™ product candidate
would not infringe any of sixteen (16) patents owned by one or more
of the Purdue litigation plaintiffs, 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, the Company received notice that
the Purdue litigation plaintiffs had commenced patent infringement
proceedings against the Company in the U.S. District Court for the
District of Delaware in respect of the Company's NDA filing for
Rexista™, alleging that Rexista™ infringes six (6) out
of the sixteen (16) patents. 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.
As a result of the
commencement of these legal proceedings, the FDA is stayed for 30
months from granting final approval to the Company's Rexista™
product candidate. That time period commenced on February 24, 2017,
when the plaintiffs received notice of the Company 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. The Company is confident
that it does not infringe the subject patents, and will vigorously
defend against these claims.
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 one per cent of any outstanding securities of the Company
or any associate or affiliate of the Company.
Our Canadian
transfer agent and registrar is CST Trust Company, 320 Bay Street,
3rd Floor, Toronto, Ontario, Canada M5H 4A6. As of July 14, 2017,
the Toronto office of CST Trust Company will be: 1 Toronto Street,
Suite 1200, Toronto, ON M5C 2V6. Our United States co-transfer
agent and registrar is American Stock Transfer & Trust Company
LLC, 6201 15th Avenue, Brooklyn, NY 11219.
56
Unless provided
otherwise in a prospectus supplement, the following is a
description of a purchaser’s statutory
rights. Securities legislation in certain of the provinces and
territories of Canada provides purchasers with the right to
withdraw from an agreement to purchase securities. This right
may be exercised within two business days after receipt or deemed
receipt of a prospectus and any amendment. In several of the
provinces and territories, the securities legislation further
provides a purchaser with remedies for rescission or, in some
jurisdictions, revision of the price, or damages if the prospectus
and any amendment contains a misrepresentation or is not delivered
to the purchaser, provided that the remedies for rescission,
revision of the price, or damages are exercised by the purchaser
within the time limit prescribed by the securities legislation of
the province or territory in which the purchaser resides. The
purchaser should refer to any applicable provisions of the
securities legislation of the province or territory in which the
purchaser resides for the particulars of these rights or consult
with a legal advisor.
Original Canadian
purchasers of subscription receipts or warrants which are
convertible into other securities of the Company will have a
contractual right of rescission against the Company in respect of
the conversion, exchange or exercise of such subscription receipts
or warrants. The contractual right of rescission will entitle
such original purchasers to receive the amount paid upon
conversion, exchange or exercise, upon surrender of the underlying
securities gained thereby, in the event that this prospectus (as
amended) contains a misrepresentation, provided that: (i) the
conversion, exchange or exercise takes place within 180 days of the
date of the purchase of the convertible, exchangeable or
exercisable security under this prospectus; and (ii) the right of
rescission is exercised within 180 days of the date of the purchase
of the convertible, exchangeable or exercisable security under this
prospectus. This contractual right of rescission will be
consistent with the statutory right of rescission described under
section 130 of the Securities Act (Ontario), and is in addition to
any other right or remedy available to original purchasers under
section 130 the Securities Act (Ontario) or otherwise at
law. Original purchasers are further advised that in certain
provinces and territories the statutory right of action for damages
in connection with a prospectus misrepresentation is limited to the
amount paid for the convertible, exchangeable or exercisable
security that was purchased under a prospectus, and therefore a
further payment at the time of conversion, exchange or exercise may
not be recoverable in a statutory action for
damages. The purchaser should refer to any applicable
provisions of the securities legislation of the province or
territory in which the purchaser resides for the particulars of
these rights, or consult with a legal advisor.
57
ENFORCEMENT OF CERTAIN
CIVIL LIABILITIES
The Company is
incorporated under the laws of Ontario, Canada 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 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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the U.S.
Securities Act and is therefore unenforceable.
58
INTELLIPHARMACEUTICS
INTERNATIONAL INC.
U.S.
$100,000,000
Common
Shares
Preference
Shares
Warrants
Subscription
Receipts
Subscription
Rights
Units
PROSPECTUS
July
17, 2017
PROSPECTUS SUPPLEMENT
INTELLIPHARMACEUTICS INTERNATIONAL INC.
3,636,364 Common Shares
H.C. Wainwright & Co.
October 11, 2017
_____________________________________