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 sub 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 the [ Elite’s ] Chairman and CEO. This is Elite's earnings call and our CFO, Mr. Robert Chen 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 have submitted to buy-in. Robert, the floor is yours.

Thank you, Nasrat, and thank you to everyone for joining our first quarter conference call today. Yesterday, we filed our 10-Q for our first quarter ended June 30th, year 2022. Elite is on a March fiscal year. A copy of the 10-Q 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 filings. Today, I would like to give you an overview of the financials and provide some commentary as well. Starting with the income statement. We had a strong sales of about $7.7 million for this quarter, up about $0.6 million or 9% compared to the same quarter last year. This is primarily due to the short sales of Amphetamine IR tablets and Amphetamine ER capsules. Again, I would like to remind you the strong -- the important fact that our sales have been on an upward joint from $8 million in the fiscal year 2019, $18 million in 2020, $25 million in fiscal year 2021, and $32 million for year 2022. Moving down, we come to cost of goods sold. As a general trend, our cost of resold reflects direct proportional percentage increase in revenue. The company posted a gross profit of about $4 million and $0.4 million over last year due to stronger revenue. Our operating income was about $1 million versus $0.97 million for prior quarter last year. Our operating expense maintained at a relative steady level at $3 million for this quarter versus $2.6 million for the prior quarter. Our net income was about $0.3 million compared to $2.4 million for the prior quarter. The main driver contributing to the decrease in net income are 2 major items. One is the derivative liabilities due to the outstanding stock warrants about $1.1 million. And the other is the net operating loss of sales about $1 million, which the company does not have during this quarter. Let me give you a brief explanation as to the calculation of the derivative liability. The change in the fair value of the derivative instrument is determined in large point by the change in the closing price of the company's common stock with an inverse relationship. In other words, the higher the common stock price, the larger than liability so that's why the variance is about $1.1 million. And also for your information, the transaction does not have an impact on the company's cash flow. Now let's move down to our balance sheet. Our working capital was strong at about $25 million, up about $12.6 million over the prior period. The increase in working capital reflect the company's ability to control its spending and also to a great degree, due to the $12 million loan we have obtained from the EastWest Bank in April this year. The loan will be used for general working capital purpose. Our cash flow -- our cash to cash on hand is about $20 million at June 30 year 2022. So with that, I'll now turn over the floor back to Nasrat an overview on the company.

Thank you, Robert. We [ met ] 6 years ago. So we going to have a tremendous update for you today. But as always, I'll take this opportunity to update you on the impact of safety on the company, Elite financials, research, and development pipeline, our commercial product, and then we'll go to a Q&A for the questions that you have already submitted to AIM. Regarding safety and COVID-19, my concerns have not changed about the effect of the pandemic on supply chain and inflation, and business continuity. All it takes is one missing component to bring the manufacturing and shipping to a hold. For us or any other industry, if this is not limited to Elite Pharmaceuticals. To date, our commercial products have not been materially affected by the supply chain partners. This is not to say that we have not been impacted. We're feeling the impact on our R&D pipeline, mostly in the form of delays in clinical trials that continue to affect us. Regarding financials, Robert hit on the right numbers. 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. Our cash position is solid. It is a combination of profits we made and money we borrowed. The money we made supports working capital and R&D and the money we borrowed was to suppose business sensors, including the potential process of Amphetamine IR and ER. More than 2 years ago, Santen informed us that they lost their financial banker. And they were in the market to sell their shares of Amphetamine IR and ER to raise cash. They would not accept payments and lease stock and the need to have the cash to buy the ANDAs. Our former CFO, Carter Ward, tries to get Elite alone but was turned down due to lack of profitability. By the time, Mark Bregman joined us, we had a better financial track record, and we were able to get a loan. 3 things happened while receiving the loan. First, the owner of the building that houses Elite manufacturing, the vault, quality, packaging, and warehouse decided to sell the building. [ Dennis ], 91 years old, and he resulted to exit the business. Second, [ Elite ] approval for Amphetamine ER, which indicates that they could be manufacturing and selling their own product. And the third Mark was no longer with us. Volume the building instead of leasing was not on the table 12 months ago and either was starting from Lannett at this time. As to the building, Cook’s analysis showed us that moving out would cost a lot more than staying and buying the building, and I'll go through the analysis for you in a minute. The building was offered to us at a warehouse price, not as a pharmaceutical building, which the rent will be a lot higher. So if we buy another warehouse, we'll have to retrofit it at a tremendous cost. And moving to a rental or building the fleet purchase would require tech transfer of all the products and bioequivalency for some, anything that an ER would acquire a brand-new clinical trials, and that costs a lot of money. So with a loan, we invested a couple of million and finance the rest, and closed in July. This action was a very positive step for Elite. The alternative would have been much more costly. With respect to acquiring the second half of Amphetamine IR and ER, the Board of Directors is and will soon decide if and when, and under what terms they make an offer to purchase the assets, in which case the money we borrowed could be utilized to purchase the ANDA. If not, it will be utilized to enhance R&D. Speaking of R&D, Elite continues to spend significant amount on research and development. It is our #1 priority and #1 focus. Our goal is to create a new set of products that are by diversed enough that they stabilize the company in case we get a hit on one of the products such as Amphetamine IR or ER then the company will not be materially affected and will survive. The more pillars we can add to stabilize the company with the better it is for all of us. Elite is working on a number of generic handles. Currently, we have 3 clinical trials that we signed contracts for. One will be done in the U.S. and 2 in India. 2 of the 3 are difficult products that take longer than the average time to exclude the clinical trial. Bottom line, many opportunities are currently being pursued, and you will hear about them at the appropriate time. Right now, all I can tell you is we have about half a dozen ANDA that we're working on actively and about a dozen that range from the early stages all the way to clinical side. This year, 2022, we have received 2 approvals from FDA. One handle for doxycycline tablets, a product we go on with [indiscernible] Praxgen, and the other is by Vigabatrin, which is owned by Elite. Regarding doxy, we'll be working with our partner to determine the next steps. Regarding Vigabatrin, the sales and marketing is licensed to Lannett. This product includes [ Ariane ] component. And we need to work on it with Lannett for the next few months to ensure that they are a part of the RIM system. On the commercial front and Amphetamine ER and IR are 2 products that are in a very competitive market. They have done very well for us. We have done very well today with our partner, Lannett. And as I stated before, they have approval for their own IR and ER. We have not received an official notice that Lannett wishes to terminate the sales and distribution agreement for this spot. However, okay, we cannot take anything for granted. We need to take and are taking all the necessary management measures to protect a lead if that happens. By finding and searching for a new sales and marketing partner, just in case, or by going at it ourselves. To that end, we are getting licensed in all 50 states. Each state has its own unique requirements. We have already filled out the applications for all 50 states. And we have already received responses from more than half of them that we are already approved. So we approved half and other half are pending. We are interviewing 3PL for distribution. We do not have warehouses. We don't have a distribution system. This is what Lannett and TAGI and Epic do on what we have. So we're interviewing third-party logistics for distribution and comparing prices to find the best deals for a small company like us. We have also interviewed VPs for sales and marketing to be ready to select somebody as soon as we -- if we hear from Lannett. The stakes are too high for us not to be ready in case that happens. Having our own sales and marketing force is something that I've always wanted for Elite. Our planning on it once we get a few more ANDAs, maybe 4 more to make it financially more feasible, but this may accelerate the process. And whatever happens, we will be ready for it. Moving on to the rest of the commercial product line, Loxapine is marketed by Prasco under the [ Boral ] Pharmaceutical label. It is one of those products that was affected by the supply chain because you could not get a critical component, actually, capsule for that in the amount that they needed for sales and market and we got very little just to be a couple of the market that they already have. We expect to resolve these issues and expect the future growth for this stage. [indiscernible] of the subleted by Epic. There are interesting products. They have very limited competition. And with Epic, we're already seeing a little more profit and revenues. -- naltrexone and the bariatric line are distributed by [ Fady ] with a steady revenue stream. To wrap 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.

Let's go to Q&A. As always, we thank your questions to Diane. And many of you often ask the question in a different way. So we group them. And if we took a question, that's where the different renewers, please understand it because other people ask the same question. And we'll start with the first one about the corporate finance. Question number one, given how cheap the stock is valued on the OTC market as management considers using some free cash flow to conduct buyback. I believe that even if a small amount of stock has moved from the float to 1 million to 2 million shares and the subsequent press release would assist in raising the company's market capitalization. Robert, would you take that one?