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 statement: Elite would like to remind their listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties that are subject to changes at any time, included, 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, Matthew, 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 with us for the first time is our CFO, Mr. Robert Chen. Robert joined Elite on May 5. His primary focus has been to work on the 10-K. Robert will speak to his background in few minutes. I am just very happy that he has experience in taking a private company all the way to NASDAQ. He will be an excellent addition to the executive team. Welcome aboard, Robert. I would like to thank Marc Bregman for his service to Elite during last year. As with our usual format, Robert 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 will be submitted to Dianne. I am delighted to introduce to you our new CFO, Mr. Chen. Robert, you have the floor.

Okay. Thank you, Nasrat, and thank you to everyone to join our Fiscal 2021 Year-end Conference Call today. As you heard in Nasrat's introduction, I'm Robert Chen, Elite's new CFO. To give you a brief background about myself, I'm a CPA and I have over 25 years of financial and operational experience with the primary focus on life science companies, both public and private, ranging from preclinical development to commercial operations. Prior to join Elite, I most recently served as Vice President of KBP Biosciences. I have also previously held the CFO position at Victory Commercial Management. I believe the highlights of the -- my working experience can be better summarized as follows: leadership in transitioning the finance department of a private corporation to a public NASDAQ-listed corporation. And I have done 3 times in building start-up pharmaceutical company, the financial operation, internal control infrastructure from scratch. With that background, I'm going to move to introduction of -- kind of financial overview of our income statement and our balance sheet. Yesterday, we filed our 10-K for the year ended March 31. Elite's [indiscernible] much fiscal year. A copy of the 10-K is available in the Investors section of our website at elitepharma.com. It is also on sec.gov and many other websites that provide links to our filing. Now I would like to give you an overview of the financial and some commentary as well. Starting with the income statement. We had a record sales of about $32 million this fiscal year, up about $7 million or 27% compared to last year. This is primarily due to the strong sales of the generic version of Adderall, Naltrexone tablets and the Loxapine capsules. Well, the important fact here, I want to point out here is, our sales have been on a upward trend from $8 million in the fiscal year 2019, $18 million in 2020, $25 million in 2021 and now $32 million this fiscal year. Without a doubt that this year, this has achieved our highest revenue in the Elite's sales history. In a period of 4 years, the company's revenue increased by 400%. Now I'll move down to other P&L section. We come to cost of goods sold. As a general rule, the cost of goods sold pretty much reflect direct proportionally to our increase in revenue. We also posted an operating profit of about $5 million, $3 million over last year due to the strong revenue. Our operating expense maintained at the relative steady level at $9.7 million for this year and $9.8 million for prior year. Even though our sales have increased by 27% over last year, this is a sign that Elite demonstrated is a great strength in operating efficiency. Our net income reached $8.9 million, was up about $3.8 million, up 75% compared to last year. Including in the net income are some adjustments related to other income, which includes a positive fair value adjustment on our derivative instrument about $1.4 million pickup and another pickup on the deferred tax benefit of about $1.7 million. The deferred tax benefits were recorded because the company has started to generate positive net income during the past 2 years. As such, the company believes it's appropriate to utilize the net operating loss carryforward incurred during prior periods. Our calculation of deferred tax benefit was based on a 2-year positive net income projection. In summary, the operational results are truly a remarkable accomplishment by Elite management team, including an upward trend for both revenue and income while being able to control its operating expenses. One key impact to know is that this increased revenue and cash flow, in particular, will help to support our product pipeline development. Now let's move down to our balance sheet. Our working capital stands at a strong level of $12 million, up $6 million or a nearly 91% increase over the prior year. Our cash from operating activity reached an impressive $6.5 million or a $3.5 million increase over last year. And our total cash on hand is about $8.9 million at March 31, 2022. This is mainly attributable to our strong sales and ability to control our spending. Again, the bottom line is that Elite is profitable and has a stable financial outlook. This concludes my financial review. I will now turn it over back to Nasrat for an overview on the company.

Thank you, Robert. Today's update will include a few comments about Elite's financials, echoing what Robert just told us, then cover safety, research and development pipeline and commercial products before we go to Q&A. I will also talk about opioid strategy, the purchase of the new buildings. A lot of people are interested in that, and a potential partner or sales and marketing force. Regarding safety, we are operating in a once-in-life 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 affecting our business as well as everyone else's business in the United States and globally. We continue following local and federal guidelines and the CDC recommendations. Most of our employees are vaccinated. We are still taking all the necessary precautions to ensure employee safety and most importantly, business continuity. My concern regarding the effects of the pandemic and supply chain inflation on our lives and businesses continue. All it takes is one missing component to bring manufacturing and shipping to a halt for us in the United States and any other industry, frankly. To date, our commercial products have not been materially affected by the supply chain problems. That is not to say we have not been impacted. It has not been easy. We are feeling the impact on our R&D pipeline, mostly in the form of delays in clinical trials. I will say more about that later. Regarding revenues and profits, Robert hit on all the right numbers: revenues, profits and cash flow. I am very pleased with the direction the sales and marketing are going and hope our sales partners continue on this path. 2 years ago, we did not have enough money for working capital. Today, we are self-sufficient and profitable. We have surpassed last year's excellent performance. And just to echo what Robert said, we went in 4 years from $7.5 million revenues to $18 million in revenues to $25 million in revenues. And this year, we hit $32 million. That is solid progress. As I said, there were a lot of questions about the building. So I'm going to start the update of the manufacturing facility with that. Around the beginning of the year, the owner of building [ 135-137 ] that houses our manufacturing, packaging, warehouse, quality assurance departments decided to sell the building. He is 91-year young, an amazing man who has worked with us for years. He got an offer from a company that's buying pretty much all the buildings on our street. He was kind enough to offer us to buy the building. We still had 4 years on the lease, but that was it, we could not renew any more after that. So we went through a quick analysis of our options and looked at the market around us. First, we evaluated what would happen if we move out and rent some other place. the group that's buying the area is converting it into nursing homes and extended long-term facilities. So if we moved out, we'll have to rent a building. If we rent a similar warehouse building, first, the rental prices were twice as much. Apparently, the gentleman being a wonderful 91-year-old retired in Florida has not been checking on the prices, and we've gotten a discount of almost 50%. Second, any time you move, there are certain equipments that will be a total loss. For example, we have a fluid bed that cost us almost $2 million, mostly in installation. It's embedded in the walls and the electronics, and that have to be taken out and moved. Third, there is the cost for clinical trials or tech transfer of all of the products that you have. So at the end of the day, when you calculate your cost if you have to move out, in addition, you have to buy new equipment in order to run the new batches there and submit them to FDA so you can get approval later on. It will cost us actually more than the price of the building, no kidding. It will cost us about $3 million to $4 million more to move than to stay. So it was a no-brainer. We went to the Board of Directors with the analysis and the Board instructed us sometime in January to move forward and try our best to buy the building. And I am very happy to say that we are closing in July. This action was a very positive step for Elite. The alternative would have been much more costly. In addition, the final comments on this. Anytime you own an asset like that, it's a positive thing. I have been a part of the company before when we needed money we had the building that we had for manufacturing in California, we found a buyer that we actually sold them the company under the condition that they lease it back to us at a premium. So it is not a bad way also to raise cash in the future once we have built-in equity. Right now, we pay for about half of it and finance the other half. Our payments per month now are a lot less than what they were before. That is the rent is a lot less than the mortgage. Regarding R&D, Elite continues to spend significant amount of research and development -- on research and development. It is our #1 priority and #1 focus. Our goal is to create a new set of products that are diverse enough that they stabilize the company such that in case if we get hit on 1 or 2 products that are material to us, such as Amphetamine IR and ER, the company will not suffer materially and at least can survive. The more pillars we can add to stabilize the company, the better it is for all of us. As you know, we received an ANDA approval for the generic Sabril. Elite is working on a number of other generics as well. Currently, we have 3 clinical trials that we signed contract force. One will be done in the U.S. and 2 in India. 2 of the 3 are difficult products and take longer than average time to execute the clinical trials. The clinical trials are one of these things that got affected by COVID. There are different regulations that they have to apply to protect the patients, the import, export licenses, so this has had really some impact on us. I was hoping that by now, for 1 of the products would have had results of the clinical trials, Instead, the company has even started the process. Again, you can only operate within the atmosphere that you have, and this is today's atmosphere. Things are moving slower than usual from our CROs, and we have to work with that. The bottom line is this: we have many opportunities that are currently being pursued. We have 6 ANDAs that are at R&D levels that are well developed, and we have a total of 12 that range from early development all the way to clinical trials. This year, 2022, we have received 2 approvals from FDA: 1 ANDA for doxycycline tablet, a product we go on with SunGen, Praxgen; and the other is the generic Sabril, which is owned by Elite. Regarding doxy, we will be working with our partner to determine the next step. Praxgen/SunGen have their own thoughts if they want to do. They really don't want to move forward with it, and we need to negotiate with them and figure out how are we going to handle that. Generic Sabril, the sales and marketing has been licensed to Lannett, and this is an agreement we worked out with Lannett almost a year ago. This product includes REMS component that will have to work with Lannett over the next few months in order to implement. This is a product that you need a specialized pharmacist physician and patients all educated on how to take it in order to take it. Regarding the rest of the commercial products, Amphetamine ER and IR are 2 products that are in a very competitive market. We have done very well. They have done very well for both of us at Lannett and Elite. We are happy with the job that Lannett is doing. As stated before, Lannett has an approval for Amphetamine ER and waiting for FDA's approval for the IR. We have not received an official notice from Lannett wishing to terminate the sales and distribution agreements for this product. So they are still officially and are our partner. But we are taking all necessary measures to protect Elite if that happens, such as we're evaluating other sales and marketing partner in case of this happen or we're evaluating whether we can do it ourselves. To that end, if we're going to do it ourselves, there are a lot of things that we need to do, way in advance. We cannot wait and we receive notice from them because one of the things you need is to be licensed in all 50 states. And it takes a minimum of 6 months to get licensed in all states. That's because each state has its own requirements, ranging from just sent me a check and you got a license to, we need $100,000 bond, SBI state background checks, fingerprinting and the works. So far, we filed about 35 state applications. We expect the rest will be done within the next 2 months. We are also interviewing 3PL companies, third-party logistics for distribution and evaluating whether we want to do the distribution ourselves and comparing the pricing. In order for us to launch a product, we need somebody who either have third-party logistics or we need to start our own distribution centers. So we're looking at the cost and effect of both. And finally, we are filling out the market and interviewing or talking to potential VPs for sales and marketing, okay? Again, this is a complex operation that's going to require a Vice President for sales and marketing to be able to handle it. Having said all of that, let me emphasize, it all may amount to nothing as we may stay with Lannett. But the stakes are too high for us not to be ready in case they decide to move forward on their own. Having our own sales and marketing team is something that I've always wanted for Elite. I was planning on it once we get 4 more ANDAs. This just may accelerate the process. Enough said about that. Loxapine, we launched last June, and it is one of the products that really was affected by the supply chain. Our partner Prasco, who marketed under their brand, Burel, were going to bid to get us more business. And we couldn't because one of the components that you make that product with was in short supply. So we could not promise to double or triple the business because we could not deliver, and then we'll end up in a problem where we have to pay for failure to supply. So we're working through that. They are doing well with it now, and I hope they will do better. Once we resolve the supply chain issue, we expect to resolve these issues and expect future growth from this product hopefully within the next 6 months or so. Isradipine and Trimipramine, Epic is our partner with these products. There are interesting products in that they have limited competition. With Epic, we are seeing a little more profit and revenues, and we hope that continues. There are many questions about NASDAQ. I always get asked about that. We have discussed NASDAQ many times before, and I will say the same thing again. A key goal for Elite is to uplist to NASDAQ. When the time is right, everybody remembers the first part, but not the second part, when the time is right. There are specific requirements that Elite must meet to qualify for the uplisting. We are working diligently to achieve them. Going from $7.5 million in revenue to $32 million is a part of that, but we are not there yet. We will continue to monitor our growth and income generation, and we'll update you on the uplisting when the time is right. I will not and have resisted for years going to NASDAQ on the fundamentals we have because if we do have a reverse split, whether it's 10 or 20, whatever it is to get us to NASDAQ. And then when we get there, we don't have the right fundamentals, and we gravitate back to the OTC Board, everybody at the sound of my voice would lose 10- to 20-fold their investment, okay? And that could happen very easily. This is why, even though it's lucrative and you'll be in NASDAQ for a short period of time, and it's not the right thing for any of us, unless we get to the right fundamentals. And if it happens tomorrow, fine. If it happens in 100 years, fine. I am not going to do it and risk the company going through what a lot of companies going through and that is gravitating back to the Bulletin Board. Okay. To wrap this up, Elite is executing on its growth plan, 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 year. As always, you have sent Dianne a whole bunch of questions. Many of them are repeat and others are within the same family, so she divided them into categories, and we will try to address those next.

Before I start, a gentleman sent an e-mail with a question that Dianne passed on to me asking about if we have any other communications with Pfizer since I mentioned them before? And the answer is no. I have already given the update on the building. So I'm not going to repeat that again. And our partnership with Lannett or potential other partners. If there is a question that's tangential I'll address it. If not, these 3 have already been taken care of. The first question is about Praxgen, SunGen and Elite. So the first question is, is the partnership with Praxgen basically the same as it is with SunGen? Have we project then -- how many projects have been added or dropped? So let me explain something in here. SunGen was sued by Sun Pharmaceutical. Sun Pharmaceutical is a huge international pharmaceutical, and SunGen moved into an office not too far from them. When they saw the name SunGen, they thought they're trying to pull a fast one on them and convince people that they are Sun-generic division. So they filed a lawsuit and force them to change their name. So it's the same company. They just happen to change their name. Everybody thinks that Praxgen bought SunGen, and why aren't we working with them. They are still the same company, that's fine, suffering from financial hardship that they lost their Chinese supporter. They just changed their name. That's all, okay? So the partnerships that we had with SunGen are the same as Praxgen because there's nothing but change with the name. Now the only thing we have in common with them is what was pending. Everything else we dissolved and moved on. The only thing that I was spending was doxycycline tablets, ANDA and capsule know-how. That's it. Other than that, we have no business with SunGen/Praxgen except they are friends, they know us, they call us, we call them, and that's about it. There is no collaborations, no R&D, nothing else, except for these 2 products. And we need to reach a resolution for them sometime soon. Actually, it's 1 product and 1 know-how. Okay. The rest of the questions -- a lot of questions about the same thing, Praxgen versus SunGen, and when they bought them when they can buy us. It's the same company. What is the approximate total market value for the drugs we are working on with Praxgen? Again, it's doxy tablets and capsules only. Products that we have left with SunGen only these 2. Why did SunGen sell its 50% interest of Adderall; or why didn't Praxgen want to keep it? Again, it's the same company. They sold it because they really did not have the money. They would have loved to have kept it. On a side note, this is from the co-CEO, the best and most successful relationship they had was with us that's produced Amphetamine IR and Er. And they would have loved to have kept that and made money, except they lost their Chinese financer. And when they had no more money and a ton of things that they're working on and employees, they needed a cash infusion. And that's why they came to us, Elite did have the money and then end up selling it to Mikah. They were desperate for money, and they wish, even until today, they had the money to keep it. Okay. Research and development, product pipeline. We were codeveloping a fairly big CNS drug with SunGen, and then it got put on hold. Is it back on again with SunGen or Praxgen? We acquired the right to proceed with the -- that product, the [indiscernible] product. So we will be proceeding with it ourselves. Actually, we are working on it. There are supposed to be another drug approval in Q2 of 2022. Did Elite receive a complete response letter? No, no. We had 2 approvals: doxy and generic Sabril. Generic Sabril, I think, is what you're talking about. And of the 2, only 1 counts toward the ANDAs that I promised we're going to come through on, doxy does not count for that. It was left over from last year. A question on my compensation and why can't we pay him in cash? I love you, I love cash, please start paying me cash. The Board changed that. I get half -- I actually get my salary in cash, and I get my bonus in stocks now. In old days, I used to get everything on stocks. Now I get my salary in cash and my bonus in stocks. Again, another question on doxycycline. When will doxycycline be marketed. As soon as we resolve the issues with SunGen, figure out what they want to do. We cannot proceed ourselves without them. The ANDA is in their name. And once we do, we'll let you know. Have you ever considered promoting the use of methadone in the prison and jail system. It could save lives and reduce reoffending. Dianne sent me this question, actually, first, I wasn't going to read it because we don't have methadone anymore. But then I really decided to because this person has a heart, and this is not a bad idea, actually. It will be very difficult for a little entity like Elite to penetrate through state and federal prison system and figure out what they have and don't have and support them. But this is not a bad idea for somebody else. Okay. And also, that's an opioid and then you need opioid insurance and also a host of problems. So it's not the right thing for us, but a brilliant idea. A financial question for Nasrat. I don't know, they are given Robert to break, I guess. Do the year-end results include revenues from Dexcel? And the answer is no. And let me explain that. We are working with Dexcel to launch our product in Israel, okay? They need to get approval from the Israeli government before we do that. And that involves a ton of work. Our team, not only regulatory, but the entire team have been working very hard with them to get them all the papers they need in order to get the approval. Now there is a reciprocation between Israel and the U.S. So they don't have to do the clinical trials again, but they have to submit all of the paperwork for the ANDA and run a few tests in vivo or in vitro, actually, test before we can do that. So we're going back and forth with them, and I hope that they can conclude this sometime soon. And after they finish, then there is a waiting period by the Israeli government. So I'm not expecting anything is going to happen for at least 6 months, if we're lucky, okay? Things move slow in regulatory agencies. But this is a product that's still alive. Our partnership with Dexcel is very exciting. We're hoping this will be a success, and there will be other products we can collaborate on, whether it's for the U.S. -- I mean, for Israel or Europe, okay? Has Elite suffered from discontinued API procurement? No, we have not. As I mentioned earlier, not API procurement. One of our products, Loxapine, had one of the components, not being as available for us to be able to bid more, but it wasn't the API. And we have never had any issues with API. So we've done a very good job on that. Can you please provide more color around the market size for the 4 ANDAs that are coming? I honestly can't for multiple reasons, but I'm going to give you one right now. Any time we file for ANDAs, we start the clinical trials. And that ANDA, let's say, is going to bring in $100 potentially, and then you work on other ANDA that's going to bring in $1. You don't know which one is going to get through the clinical trials, get the FDA, get approved. So I cannot tell you what is the universe for these ANDAs because I don't know what's going to get there first, okay? The 8 ANDAs we're working on out of the total of 12 are substantial. ANDA are about what all the big boys and girls in the market working on, okay? So we'll be throwing our head in with the big boys and see what we can do. Some of them are similar to Amphetamine ER and some are similar to Loxapine and everything in between, okay? As an investor, I was happy to see a PR in Micro Cap Daily. And I apologize for never hearing about it. Dianne have to explain to me. Do you plan to have more PRs in 2020? We will always issue press releases for PR worthy of news, okay? We're not going to just issue PRs for sake PRs. Any time there's something that is relevant, we will update you guys. NASDAQ. What our current NASDAQ plans? I already explained that. From the transcript dating back to 2017, you said that you are going to go to NASDAQ. Now it's 2022, does he not realize that people like me are reading and following everything he says? Yes, I am hoping that you're following the fact that I'm really saying we want to go to NASDAQ, but we're not going to do it until we have fundamentals. And unless we have the fundamentals, we're not going to do that, okay? To go to NASDAQ, just to go to NASDAQ have a reverse split and go there with the debt is detrimental to all of us. Is there any activity in R&D around ADT technology currently? Okay. That will be the last question. I'll take actually the last question there is. And let me answer it this way. The landscape in the world of opioids is changing, okay? Historically, Purdue did not do all the ethical things that you should in marketing OxyContin. The federal government sued them. The politicians jumped on the bandwagon and start declaring the big bet, pharmaceutical companies are doing the wrong things and are causing a pandemic and drug overuse -- overdoses in America, and they got a lot of milage out of that, too. Later, the states saw dollar signs and they also jumped on the bandwagon and they start suing everybody and their cousin as well. When they saw money, they stopped suing just Purdue, they started suing generic companies that the FDA approved their product, and they are used for the intended use. Generic companies do not have the capability of changing the labeling. You follow the labeling of the brand. okay? So when you go there and FDA says, "Yes, this is what you're supposed to make. And this is the label you put on it, unless you're selling it illegally on the street, you're doing what the law told you. But all the states start suing and they made a ton of money as well. Of course, when we saw of this, we got out of town. We don't want to get sued because even if we win, we cannot handle the litigation part. It is my understanding that things are changing. Now in Congress, they are getting lots of complaints that the person whom the drug is made for, the person who's in pain, who has cancer, who has a surgery, who has arthritis, that are the users of 99.9% of the drugs. Nobody is thinking about them. Everybody is seeing about the junkies and the abusers. So the Congress couldn't shift overnight. Otherwise, they look like hypocrites. I'm not sure if that will bother them. But they are now listening. And they are seeing that, okay, we first sued everybody and their [ cousin ], there's nobody else to sue. Then we demanded REMS where every single doctor now gets educated on opioids, they can only prescribe certain amount to a patient, that the pharmacist get educated on same thing, that the pharmaceutical companies are creating marketing surveillance, that we have serialization where every single bottle we manufacture can be traced to your house. All the FDA have to ask is, where is this bottle? And we can actually have the supply chain to trace it all the way to the end user. The movement is going in the direction where if a person complies with REMS, with regulatory surveillance, with serialization and they do not break the law and selling to a specific pharmacy like the guy sold to Florida -- single Florida pharmacy more than they sell to 10 other states, then maybe they're protected from lawsuits or at least they'll put parameters where if you meet this criteria, you shouldn't be sued. I don't think that's going to happen overnight. And my gut feeling is that over the next 3 years, Congress will act on that. Well, for us to be back in the market, it's going to take us at least a couple of years to get there. As was announced, we're working on Oxy ER. We have to do certain studies that will be concluded by Q1 of 2023. And we will be filing the product that takes the FDA another at least year to evaluate it, so probably end up filing it in Q2. It takes them a year. And pending lawsuits and maneuvers from Purdue to [indiscernible] like the labor within the industry, things could come together, and we may be one of the first ones once we have that safe harbor that Congress acts that opioids are okay. Right now, come hell or high water, I am not getting into the market. And I've said before to the investors, to the stockholders and to my staff, we cannot even find the company, insurance company that would insure us for opioids. We cannot find a partner that will take on that burden, and we do not have the money to defend ourselves and none of the little products we have, Oxy, [indiscernible] for a small company like us, would have brought enough money for us to make it worth it. And Oxy ER anti-abuse, may bring in enough money for us to be able to buy the right insurance or to take a risk. All of that can be handled in the future, pending what the legislators do. But again, one more thing we try to be careful with and not miss an opportunity by preparing with our know-how, knowledge, clinical trials, to be next in line in case if it happened. And if it doesn't happen, we lost some money. If it happens, that will be a huge return for all of us. That would be it for today. That was the last question. I will talk to you again in 6 weeks. Thank you for listening today, and thank you, operator. Thank you, Matthew.

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