Elite Pharmaceuticals - Q1 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Elite Pharmaceuticals first quarter of fiscal year 2024 conference call. At this time, all lines have been placed on a listen-only mode. 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, 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.

Nasrat Hakim (Chairman and CEO)

Thank you, Matthew. 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. I will give you a summary of the company's financials, an update of Elite's on Elite's R&D, manufacturing, sales and distribution, and answer some of the questions that you submitted to Dianne. Yesterday, we filed our 10-Q for the quarter ending June 30th, 2023. We are on March fiscal year. The June quarter is the first quarter of our 2024 fiscal year. A copy of the 10-Q is available in the investor relations section of elitepharma.com, as well as on sec.gov and many other websites that provide links to filings of public companies. If you haven't done so already, please get a copy of the Q and read it.

As I said, you can obtain that from elitepharma.com or many of the other websites that I've mentioned. Today, I'll review with you some of the key points of the financials, starting with the P&L statement. We just had another solid quarterly revenues, achieving $9 million during the June 2023 quarter. A $1.3 million increase from June 2022, or approximately 17% increase. Increased revenues have been driven by the successful launch of the Elite label product line during this quarter. This is our first quarter we go with the Elite label. The Elite label is now being sold to more than 25 of the largest wholesalers and retailer pharmacy distributors in the country.

During our products to market our own label, we have encountered some difficulties, but overall, the financials show the success that we've had during our first quarter. Over the years, Elite has made a name for itself as a reliable manufacturer of quality niche generic products, which other licensees have enjoyed partnering with us. We have now achieved the critical mass that allows us to offer our products under our own label, and Elite has begun establishing a name for itself with most of the companies serving the United States wholesale and retail market. As with any new business segment, there have been learning curves, but overall, the launch has been a success, with record revenues achieved. Moving down the P&L, R&D costs are up by almost 20% from last year. Pipeline development is the most critical aspect of a generic company.

Our pipeline is our bloodline. All growth is related to the pipeline. We continue to invest in our future, as demonstrated by the R&D expenses in our P&L statement. Finally, our operating income was $1.6 million this year, a 60% increase as compared to the June 2022 quarter. Moving to the balance sheet. Biggest takeaway on the balance sheet is the increase in working capital. Working capital was up $1.7 million or 12% since the beginning of the fiscal year. Profitable businesses create working capital, and our balance sheet reflects that as well. We see a large increase in inventory and accounts receivable, approximately $4.7 million overall. That is all in line with growth achieved from the Elite label launch. Typical indicators of a growing business is the continued growth of working capital as our receivables and inventory turnover.

To summarize the financial statement for you, for P&L statement shows record revenues, increased profits, increased R&D investment, and decrease in the G&A cost. Our balance sheet indicates an increase in working capital, low debt, and a clean capital, capital structure. All are matrices that we want to see. It's only been six weeks since our last investor call, so a lot of the things that have to do with the site have not changed. Let me start with R&D first. Elite recently filed two ANDAs, a generic antimetabolite ANDA, and a generic dopamine agonist ANDA. These products are under review by FDA. The company also submitted a partial ANDA for pain management for FDA review. The partial application contained the recently concluded insufflation study. Elite received correspondence from FDA requesting certain information.

The information has been gathered, and the response will be out to FDA this week. This is one of the three needle-mover products that I spoke of six weeks ago. Elite has another product that is undergoing a pivotal BE clinical trial. If we pass, we expect to file this ANDA this year. Just to make sure that everybody understands me, two of the three needle-mover ANDAs I spoke of will be filed this year. Elite continues to invest in product development. Our goal is to commercialize a new competitive product as we grow and diversify our portfolio. We will update you on other developing products when we reach certain milestones, such as filing or approval. Regarding the facility, manufacturing, and products, not much has changed since six weeks ago. The products that bring in the revenues are by far first, the mixed Amphetamine IR and ER.

These are Elite's largest products. We expect them to continue to be our largest products this year under the Elite label. We have contracts in place, and we expect to maintain our double-digit market shares. Management of the DEA quota is always a challenge. However, Elite has been able to manage through this challenge to date. Amphetamine IR remains on the FDA Drug Shortages list, and both products are in demand. Isradipine and Trimipramine are being sold under the Elite label as of April 1st. Although these products are modest in volume, they only have one other competitor. Isradipine is in particularly, of particular interest to us. It's a great opportunity for us, and hopefully under Turko, we will capitalize on that. We had Isradipine being sold by another company, Mark and Bonatic.

The revenues from Isradipine for the entire year, last year, when the product was under another company, are less than what we got in one month under Turko. When you have your own product and you care, then you invest more time and effort into selling your products and in their profitability. Loxapine and Dantrolene are also of interest to us. These two products have each two competitors in the market. Pricing has been a challenge, though, despite a few competitors. We expect that we will capture a modest part of the market, and hopefully they will do also better under us than they did under our licensees. We will continue to sell selected products under licenses as well. For example, our long-term partner, TAGI, continues to sell phentermine and naltrexone.

Elite owns multiple generic products, some of which are licensed to Prasco and TAGI, and others that we are selling ourselves.... Elite has developed a new customer relationship with at least 27 companies, including Cardinal Health, CVS, Walgreens, Meijer, Publix, and McKesson. Product shipments started on April 1st without a hitch. We grew revenues from direct sales each month this quarter. Revenues grew by 17% over last year's 1st quarter. We maintain a strong cash position. Working capital increased as expected. Further growth potential will come from new sales, increased margins, and the Prasco license. Prasco has been given a non-exclusive license for two years to sell Dextroamphetamine ER under their Burel label, and those sales are expected to begin in January 2024. In addition, the Teva license continues through 2025, and they will continue to sell phentermine and naltrexone.

To wrap up, Elite is executing its growth plans by filing new ANDAs, obtaining product approvals, and creating our own sales and distribution organization. We look forward to reporting on our second quarter of direct sales when we talk again in November. Now we'll go to some questions and answers. Some of the questions that you sent to Dianne, we did what we always do, we grouped them all together and tried to address each segment by itself. The first set of questions are about the opioids we filed. "Once Elite gains generic oxy approval, can we launch as soon as the finished products are made?" If we get approval, then yes, you can launch. Usually, that's not how it happens, okay? With a product that's a brand that's being transferred to a generic. The premise is, if we get approval, can we launch?

The answer is yes, you can launch the day you get approval. Now, if you get tentative approval or approvable, you'll have to wait till certain things are satisfied. "Do any other company have generic exclusivity rights? We have to wait out first." We don't know that yet. If there's somebody else that have filed, then they're gonna beat us to the market. If the FDA gives somebody exclusivity, then they will have 180 days head start on all of us. As of now, we do not know that anybody has done all the testing required by FDA and filed as well. We know a lot of people have filed, but we don't know if they all satisfied FDA requirements.

Does Elite expect any lawsuits from Purdue over this product?" It would be difficult to imagine Purdue not suing anybody over this product. They'll always find a case. It's their biggest product. Of course, they're gonna find... They'll try and find something to sue for. That's not to be unexpected. That doesn't hinder us from launching, though. You gotta assess the risk and see if they have a valid point. "Does Impax challenging the OxyContin patent and winning affect Elite?" It does, in a positive manner. When somebody has a patent and somebody else invalidates it, they don't invalidate it only for themselves, they invalidate it for everybody in the industry.

When Impax challenged Purdue and invalidated some of their patents, these patents are no longer valid on us either, and we can go ahead and file without restrictions on these attributes. Impax' challenge did have an effect on Elite, and it was a positive one, as they did on everybody else in the industry. Does Impax get a 180 day head start? Only if they are the first to file or satisfy all the FDA requirements. The fact that they won a case in court is irrelevant. You could sue somebody and invalidate all of their patent, but if you don't have the pending application and you're first to file, you're not gonna get anything out of it, okay? Are they gonna get the 180 days?

Only if they are the first to file, and to the best of my knowledge, I haven't heard that they filed an application yet. General pipeline. What are the expected IMS numbers, market, size for the needle movers, ANDAs in the pipeline, that are the closest to being filed with the FDA? The IMS or IQVIA numbers, will be announced when we make a press release about these products when the time comes. Are any of these already pending with FDA? We will definitely make a statement about that when, when the time comes. Of the needle movers recently discussed, in what category of undisclosed ANDAs does Elite foresee the largest opportunity? Opioid, stimulant , or cardiovascular? Well, we are in the... stimulant and opioid category.

We don't have a cardiovascular one yet, but the products are in the other two categories. Does Elite anticipate any of these outperforming our Adderall IR and ER? The answer is yes, but we really don't know because we don't know how many other players are in there, and, and how we can have an Indian company that, you know, makes the API cheap and undercut everybody. But all evidence right now shows that these products will be as big, if not bigger, than Adderall IR and ER, at least two of the three. Are any new BE studies expected to be completed this calendar year? We've done quite a few BE and insufflation and pilot studies this year.

1, we will get the results for tomorrow, I expect it to be positive, and it's one of the needle movers. Whether we're gonna do anything, let's say, in Q4 of this year, remains a question mark. After the meeting with the CRO and the scientists tomorrow regarding a few products, we'll determine if we are gonna run a pilot or a BE. Whether we're running it in the fall or next year, depending on several factors, including availability of beds at the clinical site. Have any products been submitted to FDA that haven't already been disclosed to shareholders? I like that question, okay. If we did not disclose it, we obviously are not telling you about it.

I think the question is not gonna open up that door, except to tell you when the time comes, we will update you, and I will speak to that in a couple of minutes. We always issue press releases when we submit an NDA with the FDA. DEA and Adderall. Has Elite had any future conversations with the FDA, DEA on additional API quota for Adderall, given the recent FDA letter about unused quota and shortages? We have conversations with the DEA, not the FDA, with the DEA regularly, because they do give us quota, but they do give us quota hand to mouth.

We do have current quota that they just approved, it's only for two months, we go back immediately and submit and show them all the sales and show them all the contracts. Ask that we get more quota in order to give us some time to order the API, bring it in, process it, test it, make the finished product, and so on. Does Elite anticipate being granted any additional quota for this year and the next? Of course. If they do not give us quota, number one, they'll put us out of business, number two, and more importantly, they'll have a huge shortage. We command a respectable portion of the market as a small company.

The DEA does cooperate with us, does work with us, but as I said, they are not super liberal in issuing quota. They grant it a little at a time. There have been recent presses, press release, that the FDA and DEA are urging drug makers to boost output to address the Adderall shortage. Not quite. Okay, can you comment on how this will impact Elite and the company's Adderall products? Will the DEA make it easier to increase the company's quota to increase output? The DEA and FDA issued a combined statement that we received copies of before they made it public. The gist of it was really they're asking you if you have an extra quota, that you ask for 100 kilos and you only need 50, to give them back the 50.

They did not say, "Hey, you have 50, but you need 100. Would you like us to give you the other 50?" You know? It wasn't volunteering quota. It was actually asking everybody that had extra quota to give it back. If you haven't read it, please read it, and if you read it, read it carefully. The FDA got in because the shortage does impact the FDA, and the DEA is starting to work with the FDA to try and manage the situation. We've done a great job at managing it to date, but it has not been easy. You know, it's not really an easy process. It requires a lot for us to get two months worth of quota. Partnership.

Prasco and Burel during the CC, Mr. Hakim mentioned the new Prasco-Burel agreement to distribute Adderall XR beginning January 1st or the date of the first commercial sales. Can you expand on that? I thought Elite was going 100% alone after we ended our agreement with Lannett and Epic. I never go 100% on everything. My model is very simple: If anything makes Elite money, we will do it, and we're open-minded to it. The deal with Burel, with Prasco is excellent. It'll materialize and go into effect January 1st. For you who do not know, Prasco/Burel are the sales force for the authorized generic, and they asked us if we would supply them instead of the authorized generic, as of January 1st, 2024, and we said yes.

Once that materializes and see the amount of sales, it becomes a material event, and we'll discuss it more. I am ecstatic about the contract and about Prasco and Burel doing this on their own label, because that helps us also in other financial points, in that there are no chargebacks and rebates and very complicated financials. This is an easier transaction, and it's always nice to protect the company by having multiple sources of income and not consuming all the working capital into chargebacks and rebates. Okay. Corporate operation has been decided to operate with a temporary CFO from Mazars, the new auditor. I don't know where this came from. How is determined CFO search going? Are you using accounting contracts and consultants in the interim?

We frankly have the necessary qualified personnel in place, while we identify a permanent CFO. In no way has this business activity has been hampered, by not having a CFO. The fact is, we do have two consultants working as CFOs that have helped us put the entire Form 10-K the last time before, and the Q, and helping us with internal controls and finances. When we find a permanent CFO, we'll make an announcement. In the meantime, we have a lot of help, and we're doing very well. In addition to the fact that the last time, I gave this presentation without a CFO, the stock actually went up, so I may not hire one for a while. We'll see how that goes. All right.

About what point in time in production it's expected to max out the current facility? When the sales are enough that we cannot make anymore and go to second and third shift, we still have capacity in there, but really, it's really difficult to run a plant 24/7. Before we get to that point where we're having to go to second shift in all departments and a third shift on weekends, I definitely, as I mentioned the last time, thinking about the solution for that. Are we nearing the need for any new shifts to be created at our facility? Anytime we do, we go ahead and accommodate. For example, in packaging, that got to be way too much for people to come in early in the morning and stay late.

We're running extended shifts, so we run two shifts till we caught up. Okay? Same thing in the lab. We stagger people in the morning and in the afternoon to do the same thing, as well as manufacturing. Okay. Couple of questions that Dianne does not remember that I address, dropped it from the message board, but I'll entertain them because they were entertaining. All right, the first, I was gonna say, gentleman, I apologize. The first person, could be a lady, I don't know, says, "Some naysayers constantly allege that Nasrat intentionally over the years, have been to purposefully put out bare minimum press releases and continue accumulating enough shares at the low price via salary and dilution to ultimately take over the company." Serious conspiracy theories. "Take it private at a very low price.

To be clear, I do not personally believe this. I think it is a smear designed to harm the stock. Please consider refuting this publicly." First, I have addressed this before, and I've stated before that I have no interest in taking ELTP private. If I wanted to take over the company, I would have done it long time ago, via selling the assets I have for shares or something else, or would not have done what I've done to get the company to be profitable and value so much more. Okay, so I've already settled this issue, but when people don't want to listen, they don't listen, and they keep repeating the same lies over and over again, until somebody believes it. Let's take what you said step by step.

First, regarding the press releases that we purposefully issue bare minimum press releases. Take a moment and think about that. When we issue profound press releases about great achievements of the company's financials and moving to profitability and contracts with, with, with other companies, all the great stuff that we have done in the past five years when we've been every year creating more revenues and more profit than the year before. When we do all of that and the stock doesn't even move, do you think that making a stupid, superficial statement like, "Oh, we're thinking about filing this product", or, "You know, it's gonna move anything?" No, it'll make us into a joke.

When somebody wants to invest in ELTP and look at all the press releases, and their press releases are all Mickey Mouse press releases, they can see through that. Yes, we only issue press releases that are relevant. We do this at least 4x a year for our financials and anytime there is a material event. Other than that, we're not gonna change our practices. Okay? I have already addressed the issue with taken over the company. I have no interest in doing that personally. Now, if a company like my old activist company wanted to buy Elite, they are private, that's fine. If Humanwell, which bought Epic, wanted to buy Elite, I'm fine with it.

For me, personally, to take the company private, I have, and I've stated before, few months back and a few months before that, I have zero interest in, in doing that. Second question is really long. I'm not gonna read the whole thing, but I will read the gist of it. Many investors are very frustrated with the stock price, the business fundamentals have greatly improved over the years, but that has not translated into a stock price success. The person goes on and on about analyzing the company and says, "I honestly do want the company and the stock to both do well." The gist of the full page commentary is two things.

One is, "I am asking that Elite consider paying all salaries in cash ASAP." That's the first one, and second, "Consider even a $500,000 to $1 million-dollar stock buyback plan." A $1 million would currently be anywhere from 23 million-33 million shares. Okay. We will talk about buybacks and all of that at a future date. Investing $1 million to get 25 million shares when you have 1+ billion shares outstanding, is not gonna do anything to the company or the stockholders. It's gonna take away $1 million that can be spent on multiple clinical trials that could bring us an Amphetamine IR or ER and have a huge impact on the company. This is to the second one.

As to your first inquiry, that Elite consider paying all salaries in cash ASAP, I hereby issue the decree, such that immediately we're gonna do that, for two reasons. Number one, because you asked, and number two, because really, the board have already voted that we do that last week. The board actually, about a year ago, approved us doing that. It approved it with the caveat, as the company can afford it. We couldn't afford it because it is hypocritical for me, for example, on the board, to take money in cash and then turn around and loan the company money. That's why we didn't do it, even though the board has been thinking along the same line of thinking, "Hey, let's start paying everybody in cash." Also there is the other side.

If we pay you in cash, then we have less money to do clinical trials. We're paying you less in cash, and then asking you to loan us money, it didn't make any sense. In the last meeting, last annual meeting, the one before this one, we talked about that. In this one, they said the same thing. You still have a green light to consider doing this, and that's what we were gonna work on. Both your ideas are viable. One, we're gonna work on paying everybody in cash, and the second, the stock buyback, is on the table, but there is a matter of whether you can afford it or not, okay. There'll be a time where Elite will be profitable enough for, for us to split the money into a buyback program and supporting the clinical trials.

That will be after we pay our loans. As you all know, I've loaned the company money. One of our great board of directors members loaned the company money as well. When that is paid, and Elite can live within its means, then it will make a lot of sense for us to spend money on R&D and spend it also on buying back stocks. All right? With that being said, looking forward to talking to you in November and reporting on the second quarter's results. Thank you, Matthew, and everybody, have a great day.

Operator (participant)

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