Initiating Coverage. We are initiating coverage on IntelGenx Technologies Corp., an emerging specialty pharmaceuticals company, with a Buy rating and an 18-month price target of $2.50 per share. In our view, IntelGenx is an extremely undervalued company with a highly risk-mitigated product candidate pipeline, three valuable technology platforms, and a very capital-efficient business model. The firm has demonstrated the ability to develop drug candidates rapidly using the so-called 505(b)(2) regulatory pathway and has even managed to get one of its agents approved by the FDA in the U.S. without any help from a partner, which is unheard-of for firms of this size.
Multiple Value Drivers Ahead. We believe that, with a market cap of under $32 mm and potential to achieve cash flow positive status in 2013, this company should be the focus of investor attention. Since the firm utilizes the 505(b)(2) pathway, all of its drug candidates are based on well-known agents that have already been approved in some other form. This mitigates risk and also allows IntelGenx to move pipeline candidates from concept into the clinic at an unprecedented rate.
Unwarranted Valuation Discrepancy. We note that IntelGenx's current enterprise value is lower than the aggregate value of the milestone payments due to the firm on future sales of Forfivo?. Further, we would point out that even though IntelGenx closed 1Q 2013 with only $3.5mm in cash, the firm uses so little cash to fund operations that we do not project any near-term financing need.
Sentiment: Strong Buy