ELTP - Elite Pharmaceuticals Inc. (ELTP) Q1 2024 Earnings Call Transcript

2023-08-15 15:55:06 ET

Elite Pharmaceuticals, Inc. (ELTP)

Q1 2024 Results Conference Call

August 15, 2023 11:30 AM ET

Company Participants

Nasrat Hakim - President and Chief Executive Officer

Presentation

Operator

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 statements. 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 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.

Nasrat Hakim

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. I will give you a summary of the Company's financials, an update on Elite's R&D, manufacturing, sale and distribution, and answer some of the questions that you have submitted to Diane.

Yesterday, we filed our 10-Q for the quarter ending June 30, 2023. We are on March fiscal year and 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 the 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 elite pharma.com or many of the other websites that I mentioned. Today, I 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 financial 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 product, which other licensees have enjoyed the partnering with us. We have now achieved the criticalness 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 and 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 indicator 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.

And our balance sheet indicates an increase in working capital, low debt, and a clean capital to capital structure, all our metrics that we want to see. It is 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. So let me start with R&D first.

Elite recently filed two ANDAs, a generic anti-metabolite ANDA and a genetic dopamine agonist ANDA. These products are under review by FDA. The Company also submitted 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 DE clinical trial. If we pass then we expect to file this ANDA this year. Just to make sure that everybody understands me, two of the three needle mover ANDAs as 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 shortage list on both products are and demand.

Isradipine and Trimipramine are being sold under the Elite label as of April 1st. Although these products are modest on 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 Kirko we will capitalize on that.

We had Isradipine being sold by another company first Glenmark and then Epic. 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 Kirko. When you have your own product and you care, then you invest more time and effort into selling your product 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 Phentermine and Naltrexone. Elite owns multiple genetic 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, Myers, 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 first 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 Amphetamine ER under their Burel label and those sales are expected to begin in January, 2024. In addition, the TAGI 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've got some questions and answers. Some of the questions that you sent to Diane, we did what we always do, we group them all together and try to address each segment by itself.

Question-and-Answer Session

A - Nasrat Hakim

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, that's being transferred to a generic. But the premise is if we get approval, how we launch the answer is yes. You can launch the day. You get approval. Now, if you got tentative approval or approval, 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 and they're going to beat us to the market. If the FDA gives somebody exclusivity then they will have 180 days a head start on all of us. But 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're all satisfied the 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. Okay. They'll always find the place. It's their biggest product. Of course, they're going to find the, the triumph, find something to sue for. That's not to be unexpected. That doesn't hinder us from launching though. You got to assess the risk and see if they have a valid point.

Does in tests challenging the OxyContin patent and winning effect Elite? It does in a positive manner.

When somebody has a patent and somebody else invalidate it, they don't invalidate it only for themselves. They invalidated for everybody in the industry. So when in test challenged Purdue and invalidated some of their patents, these patents are no longer valid on us either and we can go ahead on file without the restrictions on these attributes. So in test challenge did have an effect on Elite and it was a positive one as they did on everybody else in the industry.

Does in tests get 180-day head start? Only if, there are the first to file or satisfy all of FDA requirements. The fact that they won a case in court is irrelevant. So you could sue somebody and invalidate all of their patent, but if you don't have a pending application on your first to file, you're not going to get anything out of it. So, are they going to 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 IQIA 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 the time comes.

All the needle movers recently discussed in what category of undisclosed and as does Elite for foresee the largest opportunity. Opioid stimulus are cardiovascular. Well, we're in the stimulus and opioid category. We don't have a cardiovascular one yet, but the products are in the other two categories.

Does Elite instead 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 how we going to have an Indian company that 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. One, we will get the results for tomorrow, and I expect it to be positive and it's one of the needle movers. Whether we are going to 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 going to run a pilot or a BE and whether we are 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. So, the question is not going to 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 ANDA 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, but it's only for a couple of months, and we go back immediately and submit and show them all the sales and show them all the contracts and ask that we get more quota in order to give us some time to order the API bring it in, the 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. And number two a more importantly, they'll have a huge shortage. We command a respectable portion of the market as a small company. So, the DEA does operate with us, does work with us, but as I said, they are not super liberal in issuing quota. They granted a little at time. There has been recent presses I guess that's press release. The FDA and DEA are urging drug matters 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. And the gist of it were really, they're asking you if you have at extra quota that you ask for a 100 kilos and you only need 50 to give them back to 50. Did not say, hey, you have 50, but you need a hundred. Would you like us to give you the other 50? It wasn't volunteering quota, it was actually asking everybody that has extra quota to give it back. If you haven't read it, please read it. And if you read it, treat it carefully.

The FDA but then 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. It's not really, an easy process. It requires a lot for us to get a couple of months, worth of quota.

Partnership, Prasco and Burel during the CC also as I mention the new Prasco and Burel agreement to distribute Adderall ER 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 motto 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 1, 2024, and we said, yes.

Once that materialize and see the amount of sales that becomes a material event and we'll discuss it more. But I am hysteric 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 charge backs 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 charge backs and rebates.

Corporate operation has already decided to operate with the temporary CFO from [indiscernible], the new auditor. I don't know where this came from. How is the permanent 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 hammered by having a CFO. And the fact is we do have two consultants working as CFOs that have helped us put the entire 10-K the last time before and the Q and helping us with internal controls and finances.

So, 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 awhile. We'll see how that goes.

Alright, 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 the second and third shift. We still have capacity in there, but really it really is difficult to run it land at 24x7. So, before we get to that point where we are having to go to second shift in all departments and a third shift or 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 were running extended shifts. So, we ran two shifts till we caught up. Same thing in the lab, we staggered people in the morning and then the afternoon to do the same thing as well as manufacturing.

Couple of questions that Diane does not recommend that I address, gossip from the message board, but I'll entertain them because they were entertaining. Alright, so, the first, I was going to say gentleman, I apologize, the first person, it could be a lady, I don't know. Says some naysayers constantly allege that 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 stated before that I have no interest in taking Elite private. If I want to take over the Company, I would've done it long time ago via selling them 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 till somebody believes it. But 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 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, making a stupid, superficial statement like, oh, we're thinking about filing this product or it is going to move anything? No, it'll make us into a joke. When somebody wants to invest in lead and look at all the press releases and the press releases are all Mickey Mouse press releases, they can see through that.

So yes, we only issue press releases that are relevant. We do this at least four times a year for our financials and anytime there is a material event, other than that, we're not going to change our practices, okay. I have already addressed the issue with the 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 a human will, which bought epic, wanted to buy a Elite, I'm fine with it. But for me personally, to take the Company private, I have and I've stated before, few months back and few months before that, I have zero interest in doing that.

Second question is really long. So I'm not, but I'll read the gist of it. Since 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 and that's the first one. And second, and consider even a 500,000 to a million dollars stock buyback plan. A 1 million would currently be anywhere from 23 million to 25 million to 33 million shares. We will talk about buybacks and all of that at the future date.

Investing $1 million to get 25 million shares when you have one plus billion shares outstanding is not going to do anything to the Company or the stockholders. And it's going to 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. So,, this is to the second one, but as to your first inquiry that ask that Elite consider paying all salaries in cash ASAP. I hereby issued the decree immediately we're going to 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. So the Board actually about a year ago approved us doing that. But it approved it with the caveat as the Company can afford it. Well, we couldn't afford it because it is hypocritical for me, for example, and the board to take money in cash and then turn around and loan the Company money.

So that's why we didn't do it even though the board has been thinking along the same line we're thinking. Let's start paying everybody in cash. But also there is the other side, if we pay you in cash, then we have less money to do clinical trials and we're paying you less in cash and then asking you to loan us money. It didn't make any sense. So in the last meeting, last annual meeting 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're going to work on. So both your ideas are viable. One, we're going to work on paying everybody in cash and the second this stock buyback is on the table, but there is a matter of whether you can afford it or not.

And there'll be a time where Elite will be profitable enough for us to split the money into a buyback program and supporting the clinical trials, but 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 loan the Company money as well. When that is paid an Elite can live within its means then it'll make a lot of sense for us to spend money on R&D and spend it also on buying back stocks.

With that being said, looking forward to talking to you in November and reporting on the second quarter's results. Thank you Matthews and everybody have a great day.

Operator

Thank you everyone. This concludes today's event.

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