Elite Pharmaceuticals, Inc. (ELTP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Elite Pharmaceuticals conference call. [Operator Instructions] Before management begins speaking, the company has the following statements: Elite would like to remind their listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties and are subject to changes at any time, including, but not limited to, statements about Elite's expectations regarding future operating results. Forward-looking statements are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectation. Actual results may differ materially. Elite disclaims any obligation to update or revise its forward-looking statements, except as required by law. More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports Elite files with the SEC, which are available on Elite's website at elitepharma.com, under the Investor Relations section. Elite encourages you to review these documents carefully. With that covered, it is now my pleasure to turn the floor over to your host, Mr. Nasrat Hakim, President and Chief Executive Officer of Elite Pharmaceuticals. Sir, the floor is yours.

Thank you, Paul. Good morning, ladies and gentlemen, and thank you for joining us today. My name is Nasrat Hakim. I am Elite's Chairman and CEO. This is our earnings call, and our CFO, Mr. Carter Ward, will give us a summary of the company's financials. After which, I'll come back with the corporate update and answer some of the questions that you've submitted to Dianne. Mr. Ward, you have the floor.

Thank you, Nasrat, and thanks to everyone, as always, for calling in today. Yesterday, we filed our 10-Q for the quarter and the 9 months ended December 31, 2020. We're on a March fiscal year, so the December quarter is the third quarter of our 2021 fiscal year. The Q is available on the Investors section of our website, which is elitepharma.com as well as sec.gov and other websites that provide links to our filings. If you haven't gone through the Q yet, please get a copy from elitepharma.com or any of the other sites. Today, I'd like to review some of the key parts of the financials, providing analysis, context and insight into the numbers. As always, we received questions and comments from shareholders and Elite followers, and I'll do my best to address those questions that are related to the financials. So let's start with the P&L, where we reported another double-digit growth in revenues, that makes 7 quarters in a row now where we have achieved double or triple-digit revenue growth on a year-on-year basis. Revenues for the quarter ended December 2020 were $6.05 million as compared to $5.05 million for the December 2019 quarter. So that's a $1 million increase or 20% as compared to the same quarter last year. The increase was driven by revenues from generic extended-release Adderall, which was launched on March 30 of this year. We also saw strong growth as compared to last year for generic immediate-release Adderall and generic Dantrolene capsules. Our other products, Isradipine, Phentermine, Phendimetrazine and Naltrexone also continued their consistent performance with continuing solid contributions to revenues. While Phentermine, Naltrexone and Phendimetrazine do provide a stable revenue base, as they've done for many years now, it's the generic Adderall and Isradipine products that continue to stand out as the growth driver, both retrospectively, as evidenced by revenues reported, and prospectively, with certain factors seeming to indicate additional future upside for these products. So remember, our generic Adderall products are still relatively new in the market. We launched the immediate-release product just a little over a year ago, and we launched the extended-release product less than a year ago, only 9 months or so. And our alliance partner with these products, Lannett, they continue to do an excellent job penetrating the market, and they should continue expanding market share. So these factors were mentioned in previous calls, and the results are clearly evident on our P&L statement. The takeaway here is that the factors that have driven the substantial year-on-year growth over the past 7 quarters remain, and they should continue their positive contributions prospectively. Moving down the P&L statement, we achieved an operating profit of $1 million for the quarter. That's compared to an operating profit of $600,000 during the December 2020 -- 2019 quarter. That's a 67% improvement in profitability and the third consecutive quarter with operating profits, and that's the first for Elite. On a fiscal year-to-date basis, the 9 months from April to December, our operating profit was $3.2 million. That's compared to an operating loss of $900,000 for the same 9-month period in 2019. That's a $4.1 million turnaround in profit since last year, and this has led to a significant strengthening of our financials. Our balance sheet working capital has more than quadrupled from $1.6 million to $7.3 million during the last 9 months, and our operations have generated a positive cash flow of more than $3.9 million this year and that's compared to an operating burn of $600,000 last year. So that's $4.5 million improvement in cash flow and, obviously, a stronger balance sheet that goes with it. So that's the impact of the increased revenues and profits, positive cash flows and a strengthening balance sheet. Now one last thing before turning things over to Nasrat, and that's a question I received, which I might as well answer now if that's okay with Nasrat. And then the question is, what is the status and are you still planning on a NASDAQ uplisting? That's a good question. I get that a lot. And thanks for asking it. And yes, that uplisting is still very much in our plans. As we said in the past, Elite's fundamentals have to be in order for us to uplist to the NASDAQ. Now from the financial side, that means increasing revenues, profits, positive cash flows and the financial means to continue developing more products. So most of the attention given to our financials is on these factors. And as you can see from our financials, there's been great improvement over the past 12 to 18 months, and those fundamentals are shaping up nicely. But there's other financial fundamentals that I focus on, which is just as important. Front and center from my standpoint is controlling Elite's level of debt. Growing revenues at double and triple-digit rates require us to continually develop and commercialize new products. Oftentimes, this requires incurring substantial debt, which acts as a drag on future growth, a detriment to further product development and, in some cases, results in companies going under. And there have been a few notable examples of this recently. Elite, on the other hand, we've been developing products. We've been commercializing products, but without incurring anywhere near the level of debt incurred by so many others in the industry. Our growth has been financed at first through equity financing and, for most of this fiscal year, from internal cash flows alone, no debt. I'll repeat that. No debt. So when we talk about fundamentals being in place, there's 3 debt-related ratios that I focus on, and all 3 demonstrate just how relatively debt-free we are in comparison to some of our peers in the generic market. First, there is the ratio of long-term debt to current market cap. Now Elite's long-term debt is less than 5% of our market cap. And that compares to Teva, which is 190%; Amneal, 340%; and Endo, which is 400%. So these companies, they each have loans that are 2, 3 and 4x their market caps. And Elite is just the opposite. It's our market cap that's larger, and it's more than 20x that of our long-term loans. Second ratio I focus on a lot is the ratio between long-term debt and equity. So Elite's long-term debt is approximately 21% of its equity. And that compares with Teva, which is 202%; Amneal, 973%; and Endo, which has negative equity and more than $8 billion in long-term debt. So Elite's debt is a fraction of its equity, while others have debts that are multiples of their equity. The third ratio that really sticks out is the times interest earned ratio. And that measures EBIT, earnings before interest and taxes, in relation to interest expense. So this is a ratio where the higher number indicates stronger financials due to revenues being greater than underlying debt and interest expense. So Elite's times interest ratio is 18. That's compared to 3 for Teva and 1 for Amneal and 1 for Endo. So this means that thanks to our low level of debt, we have a much greater percentage of earnings available for product development as compared to other companies which have debt and interest expense that consume large portions of their earnings, leaving less available for product development. This is one of the reasons why we're able this year to fund product development internally from internal cash flows. So if you ask me about the status of an uplisting, I would say that everything we need to do and need to see from a financial standpoint is coming together. The fundamentals on the P&L statement, the cash flow statement and the balance sheet, they've improved substantially and are actually, in some cases, among the strongest in our sector. This is on the critical path to achieving the uplisting, and we're doing well in meeting this. So to sum things up from a finance perspective, our financials continue to strengthen; revenues are up; cash flow is positive; debt is low, very low; and the ratios and fundamentals are coming together on target. As you know, things don't always go as planned, but this is going as planned, and it's nice to see so much being on track. And now our Chairman and CEO, Mr. Nasrat Hakim, would like to give an update and his comments.

Thank you, Carter. I'm going to cover 5 points. The first is a safety update; second is research and development; third, commercial and current products; fourth, recapping financials; and fifth, Q&A. Regarding safety, we operate in a pandemic. COVID-19 is a pandemic that is affecting us all. It is affecting Elite. It's affecting our suppliers, service providers and sales and marketing partners. We are following local and federal guidelines and the CDC recommendations. We created and implemented employee protection plan that includes employee training, daily temperature monitoring, social distancing, wearing masks, appropriate attire, washing hands, proper hygiene, et cetera. We also staggered the shifts when possible to give people more space and less exposure. We limited the number of associates in the manufacturing suites to 2, and increased the airflow in the manufacturing rooms. In addition to HEPA filtration, we installed UV lamps to ensure that if viruses and bacteria reach an air conditioning or heating ventilation or duct, then they'll be killed before they end up in someone else's office. All nonessential employees have been given the option to work from home because safety measures are very high at Elite. Why do I update you on safety every quarter? Because these safety measures protect the employees which protect the business continuity of this company and that protects the shareholders and the patients. Regarding research and development, now that we are cash positive, our first priority was to secure enough cash to cover working capital and facility maintenance. We have achieved that. The second priority is research and development. The partnership with SunGen was an important partnership to both companies. They had the R&D niche, and we had the GMP facility that is approved by FDA and DEA. We have manufacturing equipment and systems capable of multiple technologies, tablets and capsules, instant-release, delayed-release or sustained-release and extended-release, utilizing either aqueous or organic nonaqueous coating technology. SunGen had good formulators and regulatory team strategy. SunGen, for the most part, utilized Elite's facility and Elite's staff to manufacture and test the GMP part of their ideas and formulations. Now that SunGen could not continue, we supplemented our R&D capabilities by hiring Dr. Jason LePree. Dr. LePree is no stranger to Elite. He is a registered pharmacist and a PhD in pharmaceutics. Dr. LePree's priorities are: number one, the central nervous system product that we have discussed before; number two, evaluate and prioritize the R&D ideas, formulations and products that Elite has; and number three, establish a pipeline for the company. We also hired a Vice President of Regulatory Affairs to further improve our regulatory strategy that will be working with Dr. LePree. It is Elite's vision and the creation of the 3 basket approach that led us despite all that happened to profitability. Our in-house research and development is key to the next steps in our growth. Elite continues to work on differentiated generics for future growth. Elite's focus is on solid oral dose production -- products that are difficult to formulate. That creates a barrier to entry to some companies and make us more compatible. A final note on R&D. We are not going to use the Lincoln Park Capital to buy ANDAs or run clinical trials at current prices. We have not tapped into Lincoln Park Capital for more than a year now.

Close to, yes.

Yes. And we have no intention of doing so at today's share prices. That could change if the share price is right and the return on investment for Elite is worth it. The third point I would like to discuss is our commercial products. Mixed Amphetamines, IR and ER, have been the backbone of this company as of late. So regarding the API supply and DEA controls, which we've had questions on that, we do not have any issues currently. We have not encountered any issues with the API supplier or with the DEA. The DEA has been, for about a year now, excellent at granting our request for more quota. And our API supplier have been happy to supply it with upfront payments. Amphetamine IR and ER are distributed by Lannett, our sales and marketing partner. They are doing a good job, and we expect Amphetamine IR and ER to continue to add our profit and revenue growth. Loxapine. We have sales and marketing partner for Loxapine that is eager to sell this product. Loxapine is currently on the FDA product shortage list. The API supplier has been the cause of the delay. They promised API this month. When they deliver, we'll be ready to move on and move fast. As soon as we receive the API, it will get priority to be made so we can launch. We will update you upon the launch date. Once the launch takes place, we will update you via a press release. The IQVIA is about $5 million for this product, and currently, there are 4 ANDAs approved, including ours. Recapping financials. Elite profitability growth continues, and that is fueled by Amphetamine IR, ER and other products such as Isradipine.

Isradipine, Dantrolene, yes.

Revenues this quarter were $6 million, and fiscal year-to-date revenues for 9-month only are $21 million. Compare this with $7.5 million 2 years ago, and $18 million last year. In 9 months, we have generated more revenues than we did the entire year last year and almost 3x the year before, and we still have a quarter to go. We've had 7 consecutive quarters of year-on-year revenue growth and 3 consecutive quarters of profitability. Income from operations were $1 million this quarter and $3 million for year-to-date. Working capital is under control and cash at hand is enough to cover working capital and an investment in research and development and clinical trials. We will start running clinical trials very soon, within weeks. To make sure everybody understands, we will issue a press release when there is a material event. We do not do that when we start a clinical trial or we run a pilot or what have you, only when there is a material event, you'll hear about it. Q&A.