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. 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, Marc Bregman, 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 submitted to Dianne. Marc, you have the floor.

Thank you, Nasrat, and thanks to everyone for calling in today. Yesterday, we filed our 10-Q for the quarter ended September 30, 2021. We're in a March fiscal year, so the September quarter is our second quarter of fiscal 2022. A copy of the 10-Q is available in the Investors section of our website at elitepharma.com. Today, I would like to give you an overview of the financials and some commentary as well. Starting with the income statement, we posted sales of $8.6 million this fiscal quarter; that's up $1.2 million or 16% compared to the same time last year. This is primarily due to strong sales of the generic version of Adderall. Costs were similar to last year, giving us an operating income of $1.4 million or a 17% margin and $100,000 over last year. Year-to-date sales were $15.6 million, up $0.7 million from last year. Again, this is due to strong sales of the generic version of Adderall. Costs were a bit higher, due to an increase in product development costs and more headcount. However, we came in with an operating profit of $2.4 million for the year, $200,000 over last year. Turning over to our balance sheet. Our working capital continues to grow to $9.6 million, up $3.2 million from year-end. This is directly due to positive cash flow from operations and low debt. To sum it up, with higher sales and a strong margin, we continue to beat last year numbers. And with that, I'd like to turn it back to Nasrat to give an overview on the company.

Thank you, Marc. In today's update, I'll make a few comments about Elite financials. Then, I'll update you on safety, research and development pipeline, and commercial products before we go to Q&A. Regarding safety, we are operating an once-in-a-lifetime pandemic. COVID-19 is a pandemic that is affecting us all. It is affecting Elite, our suppliers, service providers, and sales and marketing partners. It is not only affecting our business, but everybody's business in the United States and globally. The supply chain of the U.S. has been interrupted, as you can see from all of our ports are backed up. We are following local and federal guidelines and the CDC recommendations. Most of our employees are vaccinated. We are still asking everyone to social distance as much as possible. We are holding meetings via Microsoft team and conference calls for employees that must be in the same manufacturing suite. We have often to socially distance with increased airflow and circulation. And in addition to hyperfiltration in the rooms, we've installed UV lamps to ensure that if viruses and bacteria reach an air duct or a heating vent, then they will be killed before they enter someone else's office. My concern regarding the effect of the pandemic on our life and businesses continue. All it takes is one missing component to bring manufacturing and shipping to a hold. This is not the case for pharmaceutical only. This is the case for all products, pharmaceuticals and non-pharmaceuticals. One component missing out of a car will hinder a manufacturer from delivering cars, the same for cell phones and the same for capsules and tablets. We at Elite are doing fine. I would like to underline that. It has not been easy, but we are not and have not encountered any material difficulties with the supply chain. We have not yet been materially affected, and I hope that continues. Regarding revenues and profits, Marc's update was short, but comprehensive. The quarter has solid numbers for revenues, profits and cash flow. I am very pleased with the direction the sales are going and hope our sales and marketing partners continue on this path. Less than 2 years ago, we did not have enough money for working capital. Today, we are self-sufficient and profitable. It is my expectation that the next quarter will be within the ballpark of this quarter revenue-wise. We are on target to surpass last year's performance. Just to remind you, we went from $7.5 million in revenues a couple of years ago to $18 million to $25 million. This year, we are poised to surpass that. However, it seems that our performance is inversely proportional to our stock price. The better we do, the lower the spike gets. In 2018, when the revenues were $7.5 million, and we're operating at a loss, the stock was $0.13. Today, with more than $25 million in revenue and profit, our stock is at $0.04. It does not make any sense. Regarding R&D and development pipeline, our profits will be invested in R&D in order to diversify our products and support the company's growth. Elite continues to spend significant amount on research and development. It is our number one priority and number one focus. Our goal is to create a new set of products that are diverse enough that they've stabilized the company and in this way, in case if we get a hit from one of our star products such as Amphetamine IR and ER, the company will not be effective. The more prevalent we can add to stabilize the company, the better it is for us, and that is the focus of our R&D. Elite is pragmatic about how to add new products. We look at all alternatives, buying products, core product [ wise ], end licensing products, co-development products, contract manufacturing or developing products on our own. Elite has co-development projects and co-developed products, such as the ones we have with SunGen and Mikah, where the partners helped to fund development or they brought formulation expertise to diversify our risk and supplement our capital investment. We currently have products [indiscernible] and under development that are co-developed. We continue to benefit from these projects, such as Amphetamine IR and ER that was a co-developed venture. And we're continuously evaluating new opportunities like this. In addition, Elite develops its own products. For those activities, Elite will own 100% of such a product, receive 100% of the benefit, but also Elite will bear 100% of the risk and the cost. Currently, Elite is working on a number of generic ANDAs. Products include those mentioned on previous calls, such as the central nerve system products and co-developed tablet [indiscernible] bariatric. The pipeline includes some products developed with partners as we discussed and some that are our own. Not all of these products will work out. Many of the products that we have in the queue may encounter difficulties in BE studies and have to be reformulated. But my hope and my belief is that many will, and they will become the foundation of the company's future. Bottom line, many opportunities are currently being pursued and you will hear about them on the appropriate time. Once we pass ADE or file an application or receive an approval from the FDA, that will be a material event, then we can discuss these products in more detail. Right now, all I can tell you is we have about a half a dozen ANDAs that we're working on actively and about a dozen ANDAs that are from the early stage, all the way to almost going through clinical trials. For 2022, we have a product under review with FDA. We have a licensed product co-developed with a partner that we are expecting approval in the first half of this coming year, 2022. For our commercial products, loxapine capsules are launched in June, and they are marketed by Prasco under their Burel Pharmaceutical label. Loxapine continues to be on the FDA's product shortage list, and we are expecting further growth from this product. Isradipine and Trimipramine, Epic is our partner for these 2 products. They are interesting products because they have very limited competition. We are -- Epic is still in the transition phase. And hopefully, by the end of this year, they will be done, and we'll start to see a little more profit and revenues from these products. Amphetamine XR and Amphetamine IR, these are products that are in a very competitive market frankly, and they have done very well for us. We have done very well to date with our partner, Lannett. We have discussed NASDAQ on many calls before, and there is a question on that -- on this call. So I will take [indiscernible] about uplisting for NASDAQ. A key goal for Elite is uplisting for NASDAQ when the time is right. There are specific requirements that Elite must need to qualify for the uplisting. We are working diligently to achieve them. We will continue to monitor our growth and income generation, and we'll update you on uplisting when the time is right. To wrap up, Elite is executing on its growth plans, working on new product approvals and capitalizing on its commercial product line. Our sales and distribution partners are performing well. We look forward to another profitable quarter. Let's go to Q&A.

As always, you sent your questions to Dianne, and we group them with the relevant department. The first, let's start with financial. There are 2 questions there, and I'll ask Marc to look it and go ahead and please answer these.

Yes. So as Nasrat mentioned, there's 2 questions. First question, how is the $1 million excess spending on cost of manufacturing explained? Well, it's simply a product of revenue. Revenue -- our revenues have increased. And in tandem, your cost of manufacturing is a variable cost; that's going to increase as well. So it's pretty much as simple as that. Question number 2, where did the growth in revenue come from? Was it from the KVK debacle? Was it from Epic sales or Adderall sales? Historically and currently, we don't provide or break down our revenue by products, but I will tell you, it's a contribution from all of our products, especially a big portion is from the generic version of Adderall. And that's it for the 2 financial questions. I'll give it back to Nasrat.

Thank you, Marc. Okay. The next group of questions about the pipeline. Please share your thoughts on progress on any NDA currently in development? The second one is what other things are in the planning development phase and will have a positive impact on the company? The sales is about the website and listing the products we're working on -- in the website without disclosed intensive information. And the last one is Elite still on track for filing for ANDAs in 2022? The answer is yes. We are doing well on our target. We have a product that's filed, and we expect approval in Q1, Q2 of next year. We have multiple products at different stages of development. A couple that will be ready for clinical trials within the first half of next year. And a couple will do them probably during the second half. Part of the formulations will be more ready and part of it also financial. We also have other development products, anti-formulation and stability stage. These are the -- that's the work that we do internally without having to do any clinical work that costs a lot more money. This is limited to API cost and [ exiting ] cost, manufacturing cost and our internal costs. Overall, I am happy with the Elite's progress on development and optimistic that we will have before ANDA is filed and also not only have these filed, but also lay down the foundation for the next drug that we're going to file the year after. The next set of questions are about COVID. Is there any opportunity for Elite to work with other pharmaceuticals to manufacture [indiscernible]? Has Elite tried to propose a manufacturing partnership with Merck and/or Pfizer or their for the latest COVID-19 pill, tablet or capsule? The answer is extremely unlikely, okay. It is extremely likely. They are large companies, okay? And they do have well-established facilities, and they have established contract manufacturers for these products. This is not the same as the -- our technology or the opioid anti-abuse technology, which we can easily manufacture for Pfizer tomorrow because we have the expertise, the equipment and the know-how. And usually, the volume of these products is not huge, okay. This has different kind of products that most likely, we will not be a part of. Government regulations, what impact, if any, will be new infrastructure the bill has on pricing of generics and on Elite? I'm not aware of any. I see part of the infrastructure bill, and there is -- not much applies to pharmaceutical. Usually, the government is always trying to reduce the prices. So I want them to stay away from us. As it is, we don't make that much money. Marketing partner is Lannett and Elite has agreed how these -- are they on time with their payments. I'm not sure where this concern comes from because Lannett has been the best partner with respect to paying us. They are better than TAGI, Epic, Glenmark or anybody else that we dealt with. As a matter of fact, they paid us earlier than they're supposed to in the early days when we were in need of money a couple of years ago and a year ago, they paid us ahead of schedule. And they have always clearly communicated the financials with us. So I'm not aware of any problems, and they have been a very good payee. Opioid lawsuit, SequestOx of pathology category, could Elite finalize SequestOx FDA approval and partner with a company who actively sells opioids, sell the nice of SequestOx, while keeping their own manufacturing in-house? Very creative. And the second is, with the recent opioid lawsuits being ruled in favor of the defendants, is there a chance someone would agree to pay for SequestOx to be a reformulated and submitted -- resubmitted to FDA in exchange for 50% interest? SequestOx does not need to be reformulated. There's nothing on the reformulation. The third question is, did Elite lose interest in the opioid business? The answer to the first 2 questions, it's not that simple, okay? As to our interest in opioids, one of many issues with opioids is the lawsuit. And granted, the person who is referring to the defendant winning, the State of California judge ruled in favor of the pharmaceutical companies that they did not cause the opioid crisis. One lawsuit versus the 100 that we've lost so far. The second most important issue, ladies and gentlemen, is insurance. We see -- we would not divest it [indiscernible]. There was an insurance company that would insure us against the liability of these lawsuits. But for us to defend ourselves and go through what the pharmaceutical companies went through in California and when we will be bankrupt long before that happens. It takes a lot of money on many years in order for you to prove you're innocent. And unless you're insured, you have to pay for that, and Elite cannot afford that. So insurance is a major problem for us. They insure us on everything else, but they will not insure us on opioids. They call it opioid exclusion. So they give us product levels, we were insured right now for Elite, but if we do opioids, then that section is not accepted, okay? And we will have to find for ourselves and pay for ourselves. So that's the second thing. And the third is finding a sales and marketing partner who's willing to sell these products and risk themselves also call lawsuits and insurance issues. That's been our issue. It's not really looking for a partner who would take on half and for me, it's something that works fine. So by way of example, if we were working on Oxy ER anti-abuse, if Pfizer did not [indiscernible] launch, the profits from such a product will be high enough that I would be willing to take the risk, and our launch at risk. And there are a few other things that I have already followed that we do to mitigate that risk, but I definitely would be willing to take a chance if there was enough money coming in to hire the best lawyers, I know that we can pay them and at the end of the day, will end up prevailing because in my mind, I know which steps need to go through to prevail during these lawsuits. What I'm trying to tell you here in simple terms is that anti-abuse technology is constantly on my mind. And frankly, someone asked about us contacting Pfizer to make COVID-19 tablets or capsules. We contacted Pfizer as recently as a couple of weeks ago. They are our business development and intermediary, but it wasn't about COVID. It's about the ART technology because that is one thing that I do not talk about because we have not gotten anything that we can report to you guys on, but it is definitely always on my mind. The next category is the antibiotics. What is the status of antibiotics product filed with FDA? Does really have our antibiotic ANDA pending with FDA or CRL, complete response letter? So I'm not sure what that means because you cannot have a complete response letter unless you have something filed with FDA. So you first file with FDA, and that generates a question from the FDA, which is called the complete respond letter. I understand there may be issues with SunGen regarding ownership of the ANDA, but don't understand why this would be delaying the FDA's decision on the approval of the ANDA. Please clarify. We filed the ANDA, SunGen/Pfizer ANDA. The FDA responded with question. The questions weren't difficult. We took care of our part with Elite and turn it over to SunGen. SunGen has specified with their part and filed with the FDA. The FDA cannot proceed and approve the product unless SunGen respond. SunGen has not responded yet, okay? Time is running out. They only have a month or 2, and they need to respond. SunGen has undergone restructuring, changed their name, a lot of other issues. And this is not one of their focuses, and we keep communicating with them to try to get them to move forward with this product. But unless they respond, the FDA is not going to be able to approve the product. Shareholders meeting, I am curious to know if you are having another shareholders' meeting in person to discuss some of our questions. That would be a very expensive way to discuss your questions. The answer is no. Shareholder meeting costs about $50,000 to $75,000. We will have one, if we go to an aspect or the business really requires it, but to have a meting to answer questions, that does not make any sense. Okay. I'll touch upon this question. During the last meeting, somebody asked why don't I get paid in cash and then take the cash and go, buy stock in the open market, and that would move the stock up. This time, somebody is spending it differently. Why don't I take up and have the Board of Directors, dig into their pockets and buy shares with their own money and then this way the stock will go up. All of these things are really silly. We need to focus on our productivity, getting ANDAs, getting telesales or marketing to move and getting finance to move the stock forward. I'm not asking the Board that doesn't get paid, to dig into their pockets and buy more shares. Partnerships, do you see any new partnerships on the horizon? Yes, I do. There's always something on the horizon. Uplisting, can you confirm NASDAQ 2022? The fundamentals are there. We need to adjust the stock price via a reverse split. I can confirm that it is a priority, and we are going through and working on satisfying all the requirements to get to NASADAQ. Last question, can you please provide an estimate at what the stock price should be based on other companies in the same space? I have given you the analysis before. Other companies that are losing money are trading at a higher multiple than we did. In my opinion, on an average to a conservative P/E ratio, we should be at least 400% higher than we are today. And this is only on the P/E ratio. I'm not talking about the fact, Marc mentioned a few minutes ago, we have very low debt. We have very solid product fundamentals. Just on this one of many, we should be 400% higher than we are today. Bottom line is that we need to stay focused on what we're doing, that is producing results. We need more products, and we need to get to NASDAQ to improve our stock. That concludes today's conference call. Thank you all for joining us, and thank you, Kate.

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