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 our 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 expectations. 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, Kate, and 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 with us for the first time as our new CFO, Mr. Marc Bregman. Marc joined Elite on May 17 following Carter Ward's resignation. Marc brings with him a wealth of relevant experience and skills in financial and operational leadership that will be of tremendous benefit to Elite. Marc is an excellent addition to Elite's executive team. Welcome aboard, Marc. I would like to thank Carter Ward for his years of service and dedication to Elite. Carter is no longer our CFO, but he is a long-term shareholder and supporter of the company. We are very happy for him and his family. We congratulate him on his new position and wish him well. As with our usual format, Marc will give us a summary of the company's financials, after which, I'll come back with a corporate update and answer some of the questions that you've submitted to Dianne. I am delighted to introduce you to our new CFO, Mr. Bregman. Marc, you have the floor.

Thank you, Nasrat, and thank you to everyone for calling in today. As you heard in Nasrat's introduction, I am Marc Bregman, Elite's new CFO. To give you a brief background about myself, I have over 27 years of financial and operational experience, including positions as controller at Langan engineering and controller at Chemtrade Logistics. I also held corporate financial positions at Chemetall and National Starch & Chemical. And early in my career, I spent several years as an auditor. I have a deep understanding and wealth of experience in financial accounting, financial planning and analysis, governance and compliance and financial auditing, Sarbanes-Oxley and cost accounting. I'm going to say I'm excited to be part of Elite and to help the company continue to grow and move to the next level. Yesterday, we filed our 10-K for the year ended March 31, 2021. We're on a March fiscal year, so the [ March ] quarter is our year-end. A copy of the 10-K is available in the Investors section of our website, elitepharma.com. Today, I would like to give an overview of the financials and add a bit of commentary as well. As always, we receive questions and comments from shareholders and Elite followers, and we will do our best to make sure we address those comments in our presentation. Let me begin with the income statement. We had record sales of $25.4 million this fiscal year, up 41% from last year. While we enjoyed organic growth, a key driver is the generic version of Adderall, for which we have a strong partner in Lannett. We had a gross profit of $11.9 million, which at 40% -- 47% margin is a few points higher than last year. We did a great job as well, controlling costs, while maintaining our R&D spend, resulting in savings of $0.5 million. This gave us an operating profit of $2.1 million compared to a loss last year of $2.3 million. We posted net income of $5.1 million, which included help from a PPP loan, a positive fair value adjustment on our derivatives and the sale of past tax benefits. However, if you adjust for these items, our net income would have been $1.9 million for the year. This truly is a remarkable increase over prior years and is consistent with continuing an upward trend for both revenue and income. What's really key to note here is that this increasing revenue supports our product pipeline development. Now let me turn over to our balance sheet. Our working capital is strong at $6.4 million. That's nearly 300% higher than last year. Our cash from operating activities brought in $3.2 million, of which we used some of that cash to pay down some loans. And lastly, our debt-to-equity ratio is less than 0.5:1. So to reiterate, we have revenue growth in our organic base, but it's the generic Adderall that stands out as our main growth driver. Again, our alliance partner with this product is Lannett who continues to penetrate the market. The bottom line here is Elite is profitable and has a stable outlook. And with that, I'd like to turn it over back to Nasrat to give an overview on the company. Thank you.

Thank you, Marc. In today's update, I'm going to talk about safety, Elite's goals for the next 2, 2.5 years, as they pertain mostly to R&D, commercial products, a couple of thoughts about financials, and then we'll take some Q&A. Regarding safety, we are operating in a once-in-a-century pandemic. COVID-19 is a pandemic that is affecting us all. It is affecting Elite, our suppliers, service providers and sales and marketing partners. We are following local and federal guidelines and the CDC's recommendations. Among the many things that we have done to protect our employees and business is to increase the air flow and circulation in the manufacturing rooms. In addition to hyper filtration, We installed UV lamps to ensure that viruses and bacteria reach an air conditioning or a heating ventilation system, they would be killed before they end up in someone's office. All nonessential employees have been given the option to work from home. At Elite, we invested in our employees and it paid off. We protected them and they protected our business. Now the majority of our employees are vaccinated. But that is not the case globally. For example, in India, the ratio of vaccinated people is less than 4%. Why is that important? Because that is where we conduct our clinical trials and also by API and raw materials and components. Therefore, distribution in India is directly impacting our R&D program and interrupting at least right now, 1 of the clinical trials that we are conducting. Now that we are profitable, Elite's goal for the next 2.5 years is to continue profitability, cash flow -- being cash flow positive and maintain adequate working capital. One of the ways we can do that is by growing our current commercial pipeline and investing in R&D. So I'll spend a few minutes talking about the R&D process. First is the product selection or selecting a product that fits into our portfolio, and that can be made at our facility. For example, recently, I was approached -- Elite was approached with an opportunity to make an injectable and a medical device. Well, that's not helpful. And this facility is not configured for that. Our product can be controlled substances or noncontrolled substances. we have a DEA license. There can be tablets or capsules, instant release, late release or extended release technology. Once we identify the product that fits our technology, we need to reverse engineer the brand formulation. We do that by creating DoE, Design of Experiment, that produces multiple formulations, covering most possibilities for the brand formulation. Then we test each formulation and compare it to the brand to narrow it down, we have to develop proper analytical methods, invest money today or a few years ago in API and raw materials, dedicate a portion of our manufacturing facility and employees to R&D work, as a portion and dedicated portion of the lab for developing analytical methods and for testing and placing these samples on stability, once we feel confident that our formulation is similar to the brand that is we are getting a similar solution profile at multiple [ PHs], et cetera. And the 2 formulations act in a similar manner on stability with respect to content assay and degradation profile, then we manufacture a clinical lot and conduct a pilot clinical trial. A pilot clinical study will either fail or needs to be repeated. And needs to be repeated or it will give you enough data to run an IVIVC. IVIVC means in vivo in vitro correlation. That's what you need to create a formulation fit for -- and go to a pivotal clinical trial. This process that I very quickly described takes years and many formulations do not mature into a successful clinical trial or a filing. And none of the events that I just described, we PR or report because they are not material until we get a successful pivotal clinical trial that becomes material or have a filing. So this is why we do a lot of work behind the scenes and all of a sudden, you will hear about results. Conducting a pivotal clinical trial costs a lot of money. To get to that point, costs a ton of money and time. But once you get there, it costs a lot of money to run it. The formulations that pass the vigorous testing and make it successfully through clinical trials, then after that requires the manufacturing of all of the lots placing them on 6-month accelerated annul temperature stability before compiling the ANDA and then filing with FDA that will take 10 months for review if they do not have any questions. Why am I walking you through all of this? To share with you all the things we do that we do not announce. It takes years before we get to a pivotal clinical trial. We are and have been actively working on multiple formulations for Elite and for Elite with the partner, 2 groups. I can tell you today that our goal is to execute 4 clinical trials and have 4 filings in 2022. Let me repeat that. Our goal is to conduct 4 pivotal clinical trials and file 4 ANDAs in 2022. Financials permitting, we intend to do this the following year after that. That is conduct for more clinical trials and file 4 new ANDAs. Hopefully, the following year, we'd have received approval for the 4 we filed before. So that's how you create a pipeline where things are going in and you have continuity in case of the depreciation of the sales in the market. And that really will be a critical point for us to get to NASDAQ. Product development is Elite's #1 focus. Our pipeline is our lifeline and we can see that when we can afford to, but when you don't have money, you slow things down. Right now, we're profitable. So we are going to move forward with all the things that we've been working on internally that are the foundations for getting to the pivotal clinical trials. Why? Because we need to diversify. Amphetamine IR and ER are great products for Elite. And we have other good products such as Isradipine and Loxapine and Dantrolene and Naltrexone, and Bariatrics. Our objective is to grow our commercial pipeline, and we can only do that with investments in R&D. We are also pragmatic about how to add new products. We look at all alternatives, buying products or the rights to our product, in-licensing, co-development with the partner, contract manufacturing, all developing products on our own. Not too long ago, Elite had limited capital for development. As our pipeline investments exceeded our profits, we didn't have money to invest in R&D at that level. So we've partnered with companies like SunGen and Mikah, where partners helped to fund these developments or brought formulation know-how of their own. We continue to benefit from this project and we will continue to evaluate opportunities where we might buy products or rights to products. Our focus is on oral solid dosage products. that are difficult to formulate such as extended releases and possibly extended releases that also happen to be a controlled substance. As a public company, we will report key material events, which typically are a successful pivotal BE study, FDA approval or product launch. Many product opportunities are being pursued and progressing nicely. You will eventually hear about them. Marc covered all the relevant financials. I just want to add that going from $7.5 million to $18 million to $25.4 million is a major achievement, even if we did not have once-in-a-lifetime pandemic. The revenues would have been even higher, but for a onetime inventory adjustment that our major sales and marketing partner had due to their financial situation. On the commercial front, this quarter, we launched Loxapine capsules in June with our partner, Prasco, under the Burel Pharmaceutical label. Loxapine continues to be on the FDA product shortage list. We expect this product launch to go well. We have a new partner for Isradipine and Trimipramine, which is actually an old partner, is Epic Pharma. These 2 products, Isradipine and Trimipramine are interesting products because they have limited competition. Glenmark, our previous partner, was not able to give them the attention we believe they deserve. We expect Epic to be more effective in the marketing of these products. We have continued to see growth from Amphetamine IR and ER in recent months. Amphetamine IR and ER are the reason for our profitability. Elite is executing on its growth plans, obtaining product approvals and launching new products and our sales and marketing partners are performing well. We look forward to another successful year.

Dianne grouped a whole bunch of questions that you all sent her, and I must admit this year, they were a little bit sooner than usual, but she made them into -- grouped them into several categories. I'll start with the ADT technology. The question is our press release no longer refers to a pipeline of proprietary pharmaceutical abuse-deterrent opioid products, or drug products, which have high barrier to entry. Does that mean those aspects of the business plan are gone for good? No, it doesn't. Not at all. There is an entire section about our ADT technology on our website. We still believe this is a valuable asset for Elite. We are currently focused on -- we are currently not focusing on opioids because of the current environment around opioids in the U.S. That's only reason. Regarding products of our barriers to entry, this is our primary focus. Second question is on antibiotics. What happened to the second [ antiviral ] between Elite and SunGen, positive top line results were reported back in October 2018, but it was never filed with FDA. That's correct. Good things and bad things happen when you have a partner, SunGen, due to their circumstances, decided not to move forward. We discussed both antibiotics, the 1 that we filed, and then we didn't periodically, but we don't have a resolution yet. NASDAQ, when will Elite go to NASDAQ. please disclose the current plan. We have always said that we will make the move once we have some fundamentals to support the listing. I do not want us to go to the NASDAQ, and then we don't have the fundamentals and gravitate back to [indiscernible] stock. We are protecting the company by insisting we get there when we have fundamentals because that's how you measure the NASDAQ. People cannot manipulate the stock on NASDAQ because fundamental stock. If you don't perform, the stock goes down. If you performance, it goes up. Unlike most, what happened to us, every time we announced good news, the stock goes down. I would like to see more approvals. I would like to see higher revenues and also higher profits before we proceed. Frankly, uplisting to NASDAQ is a key objective for Elite once the time is right. I will continue to monitor our growth and fundamentals and we'll update you on uplifting when the time is right. A question on capital structure. Is there any plan to reduce the number of outstanding shares. If you mean by reducing the number of outstanding shares by a buyback, then the answer is no. Elite's money is better spent on R&D than on stock buyback. We have gone through the analysis multiple times. It is in our best interest to stick with the present course and continue working with R&D until we get the right products that will give us the right revenues and profits and that will get us to NASDAQ. Profitability, another question, when do you expect to make a profit? We are already profitable. All right. And the last question, when will you -- when will we acquire Mikah's rights to half of the Amphetamine IR and ER ANDAs. When we have or can raise sufficient cash to do so. We know exactly how much we need. When we have it, the product is available. My personal guess, it will probably happen in mid-2022. Thank you all for joining us and looking forward to talking to you in a couple of months. Thank you, Kate.

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.