Elite Pharmaceuticals, Inc. (PNK:ELTP) Q1 2025 Earnings Call Transcript

Elite Pharmaceuticals, Inc. (PNK:ELTP) Q1 2025 Earnings Call Transcript August 15, 2024

Operator: Good morning, ladies and gentlemen, and welcome to the Elite Pharmaceuticals First Quarter of Fiscal Year 2025 Conference Call. At this time, all lines have been placed on a listen-only mode. Before management begins speaking, the conference 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 change at any time, including, but not limited to, statements about Elite’s expectations regarding forward 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 is 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, and thank you for joining us today. My name is Nasrat Hakim. I am Elite’s Chairman and CEO. This is our earnings call. Our CFO, Carter Ward, will give us a summary of the company’s financials, after which I’ll give an update and answer some of the questions you’ve submitted to Dianne. Mr. Ward, you have the floor.

Carter Ward: Thank you, Nasrat. Good morning, everybody. Thank you to everybody calling in today. Really appreciate your interest in Elite. Yesterday, we filed our 10-Q. It’s the quarterly report for the first quarter of our fiscal year ending March 31, 2025. So the June 30th quarter is the first quarter of our fiscal year. If you haven’t seen it yet, it’s available at our website, elitepharma.com, under the Investor Relations section. As usual, we’re going to go through the financials, provide some context, some color to the financial statements and also answer the finance questions that we received overnight. And once again, thank you so much for asking those questions. Appreciate it. So let’s start with the P&L. Our total revenues for the quarter this year were $18.8 million.

You compare that to the June 2023 prior year quarter, and it was $8.9 million then, so it’s a $9.8 million increase, more than 100%, more than doubled, 109% increase. And that’s really outstanding results on a year-to-year basis. But just as important is the trend, let’s look at the trend here. We’ll just take you back to June 2023 and then roll forward quarterly from there. So in June 2023, we had $9.8 million in revenues, September 2023, $14.1 million, December 2023 $15.5 million then March 2024 was $17.9 million, and this quarter, June 2024, $18.8 million. So a very nice trend there. Operating income was $3.9 million on a year-to-year basis compared to June of 2023. The prior quarter was $1.6 million, $3.9 million this year, $1.6 million last year, so it’s a $2.3 million increase, 141%.

Q&A Session

Once again, let’s look at the trends. Going back to June 2023, it was $2.3 million, September 2023, a little down $1.9 million but then in December 2023, it was 3.5. March 2024, 3.7, and June 2024, 3.9. Once again, very nice trend there. So the increases year-to-year, the positive trends, it’s mostly due – it’s definitely due to the success of the Elite label in the market. We launched the Elite label during the June 2023 quarter last year. Now we have five quarters under our belt, and it’s very clear Elite has established itself as a reliable and valued supplier, P&L evidence is that. So the upward trajectory, it has been impressive. I’ve always enjoyed physics, so I’m going to give you a physics analogy. So, when an object is on such a trajectory, physics wise, eventually things level off, unless additional fuel, additional thrust is added to maintain that trajectory.

In our case, that fuel providing the thrust is our pipeline, and we’re well positioned with regards to that. During this quarter, we had Methotrexate approved. We acquired three ANDAs, approved ANDAs during the quarter: oxy/apap, hydro/apap and methadone. We’re bringing a previously approved product, Codeine and apap, back into a commercial stage. And behind that, we have other products that are also moving through the pipeline on schedule and as expected. So there is plenty of fuel in the tank to provide that thrust and to maintain that trajectory. I got a few questions on the P&L. Might as well address them now. First, there was a question on our licensing revenue and where it came from. And the licensing really comes from the TAGI agreement.

That’s the agreement that we signed back in 2010. So we do generate license revenues out of that. But clearly, our focus is more on the Elite label. That’s where the licensing revenue come from. Got another question that they notice are customer concentration, revenue, concentration, two customers accounted for 75% of our revenues. They want to know who those customers were. Well, we don’t disclose that type of information or customer names, but needless to say, these are some of the very largest players in the generic marketplace. Then I did get a question. First time, I got a question with a little map and everything about flood insurance and the floodplain. And the answer is yes, of course, we do have flood insurance, but no, we have never been flooded and we’ve never had a flood insurance claim.

We have backup generators for critical systems, and those came in handy during Hurricane Sandy when we weren’t flooded. But we did lose power, just like pretty much everybody else in New Jersey lost power, but those generators were there, kept us going, our critical systems going. So that worked well. Let’s move on to the cash flow statement. Our operating cash flow was positive, $3.1 million. Now, you compare that to the prior year 2023 quarter, and there was a cash burn of $2.7 million. So that’s a $5.8 million swing in the right direction. It’s a big swing, but it’s due to two factors, two main factors. First is the revenues and the profits achieved this year. I mean, when you have – when you’re that profitable and you’re beyond the launch stage, which we are, we’re a little more mature now, positive cash flows will result, and they have.

The second factor has to do with the fact that last year we were in a cash burn. The June 2023 quarter was the first quarter of the Elite label launch. So we were in launch phase last year. So when you have a new product launch that requires quite a bit of working capital on the front-end in the form of inventories and receivables. In June 2023, we used working capital to finance inventories and receivables of almost $5 million. So that creates a cash burn. It’s a textbook example of what happens when you launch a new product line or a new product, so it’s just very understandable. But you put those two together, the launch phase, cash burn, plus the more mature phase of positive cash flow, and you get a $5.8 million swing like we had. Also note that while I say, we’re in a more mature phase, but our receivables and inventories, they are still growing this year as well, almost $2 million during the June 2024 quarter.

That means we’re still in growth phase. So we’re still in growth, we’re still investing working capital, but the underlying revenue streams are more mature and they’re very strong as compared to the last year. So there’s still enough to generate more than $3 million in positive cash flow while we continue to invest in future growth. So looking down the cash flow statement, let’s look at the investing section. These are the things I just mentioned before we had purchase of the ANDAs. Those are these approved ANDAs for $900,000. Those are ANDAs, I mentioned just a little while ago, the property and equipment, we had purchases of $800,000. That was a use of cash. These are investments for future growth. The ANDAs are the three products that we’re going to be launching.

And the property and equipment, they’re part of the new facility that’s under construction currently underway. So again, forward-looking, setting ourselves up for more growth and to be able to support that growth. So onto the balance sheet, cash as of June 30, this year was $8.4 million and that’s up $1.3 million – $8.4 million, up $1.3 million since the beginning of the year or the end of the last fiscal year, March 31, 2024. So in three months, we’re up $1.3 million, more than that, I also look at working capital. Working capital as of June 30 was $29.1 million. That’s an increase of $2.2 million since March 31. I said this before in many calls, I hate to sound like a broken record, but profits drive working capital, and our financials continue to clearly demonstrate this.

Our balance sheet is continuing to strengthen quarter-on-quarter. While I’m on the balance sheet, I guess this is a good place to answer that question. I got a question on the net operating loss, what they are, what’s the value? The balance sheet is the best place to find the answer on that. We have on our balance sheet a deferred income tax asset of $22.1 million as of June 30. And that is the value of the remaining NOLs. And this is all with regards to federal income tax. So basically, we had losses from the prior years, which are essentially tax deductions going forward. So as we generate profits, we use up these losses from prior years, and the value of that today is $22.1 million to us. It’s all federal income taxes. We don’t have any state NOLs. So whatever we’re making now, whatever taxes we owe at a state level, we have to pay.

So to sum things up, number one, our financials, they continue to grow and we continue to stay on a growth trajectory. Revenues and profits are trending up. Working capital is increasing. Debt is low. The balance sheet is strengthening. All things you want to see and behind that, the pipeline is progressing and positioned to provide that fuel, provide that trust to us to maintain upward trajectory. So now our Chief Executive Officer, Mr. Nasrat Hakim will give his comments. Nasrat?

Nasrat Hakim: Thank you, Carter. I wasn’t aware you are a physics student and you should add that to your resume because you may be getting a call from SpaceX or NASA. Okay. I appreciate that. That was a very good example.

Carter Ward: I am a rocket scientist. Yes.

Nasrat Hakim: All right. I’ll say a couple thoughts about financials. Carter did an excellent job covering everything. And then I’ll talk about sales and distribution. Definitely the new product launches, that’s very exciting. Research and development and the facility infrastructure, okay. First, a couple of comments about financials. Let’s see, we got $18.8 million, as Carter said, and revenues for this quarter, compared to $8.9 million the same quarter last year. That’s over 100% increase, 109% in revenues. That is in line with our goals, and it is on target for us to have another record year of earnings. The second factor to increasing from quarter-to-quarter as Carter was outlining is also the second factor is looking at the year.

Because when you move from one quarter to the next, numbers could be deceiving by way, for example, men’s colognes sell 80% of their revenues, get 80% of their revenues for sales on Christmas and Father’s Day. The rest of the year, it’s only 20%. So if you compare quarter-to-quarter, that would not be fair. You have to compare the year before of that quarter to the year after, okay? And that’s what we do in here. And this is why we reflect that quarter on the quarter before. We are very much similar to that, because in academia, in the summer, for example, school supplies are not sold. But then in the fall, everybody buys school supplies. Well, in our case, we’re similar, bariatrics, people don’t go on a diet around Thanksgiving, but they start in January usually, and then in the spring again, they want to get in their swimming suits.

Attention deficit, older medications, people lacks off a little in the summer, but they take more during the school year because it’s obviously a necessity. So this is why it’s critical to look at one quarter of one year to the previous quarter, equivalent quarter of the year before. The second factor is you look at the totality over the whole year. Why? Because sometimes during the quarter, there is timing. If you ship on one day, at the end of the quarter, beginning of the other, that shifts some of the money from one quarter to the next. So you look at the year and you look at the totality of it. In 2019, our revenues for the entire year were $7.5 million. In 2022, it’s $17.9 million. It doesn’t matter what the quarter says, this is undeniable, that the increase is monumental.

In 2021, we earned $25.3 million in revenues. In 2022, $32 million in revenues. In 2023, $34 million in revenues. And in 2024, which closed the March of this year, $56.6 million in revenues. Obviously, the trend is not over a day or quarter or a month or a year. This is several years. For the past five years, every year our revenues have been better than the year before and therefore every year has been our best year. So, ladies and gentlemen, we are on target this year to make it our best year again. And I will expect this trend to continue into the foreseeable future through 2025 and 2026. Sales and distribution is what’s really leading our increase in revenues. Elite’s transition to direct sales with our Elite label has been a great success.

The revenue and profit growth demonstrates that success. A testament to our great team, especially Doug Plassche in the operation team, and Kirko Kirkov and his sales organization and the rest of my senior staff. Everybody is doing an excellent job coming together to get us to where we’re at. The highest revenue generating products for Elite label continue to be the mixed Amphetamines, IR and ER. We see strong market demand for these products. The sales are limited only by how much quota we can get. Managing the quota for these products is very important and our team has done an excellent job managing the quarter. Our other products, Phendimetrazine, Isradipine, Trimipramine have achieved smaller revenues than Amphetamine, but they have strong market shares and they are contributing to their revenues substantially.

In addition, to sales for the Elite label, we also have two licensees, Prasco. Prasco has a non-exclusive license for the Amphetamine ER and sells under the Burel label. This product was launched the first quarter of this year and is doing well. Precision Dose has a license for Naltrexone Amphetamine tablets and capsules and they sell under the tagging name label and Precision Dose label. Naltrexone continues to be on the FDA shortage list. Elite has other products that will enhance our pipeline, substantially increase our revenues that will be launched soon. The first product is generic Methotrexate. Methotrexate was recently approved by the FDA and will be launched this quarter. The second product is generic APAP with Codeine. The brand name is Tylenol and Codeine.

APAP with Codeine was approved a few years ago, but we waited until we saw a market need before launching it. We believe the time is now. We expect the launch of APAP with Codeine to be shortly after Methotrexate, six to eight weeks. The third product is Oxy APAP, which is Generic Percocet. We expect to launch Oxy APAP six to eight weeks after APAP with codeine. The fourth product is Hydro APAP, which is the generic for Norco and that will follow Oxy APAP. The fifth product is methadone, and we will launch that after Oxy, Hydro APAP. Of the five products that I mentioned, Elite would launch at least three within the next four months. The sixth product to be launched is the central nervous system attention deficit disorder product, pending FDA approval.

This is the most important of all the products I spoke of. This product will have launch priority over all other products once approved. Now we can only plan for what’s in the queue and what we have. We have everything we need to launch the central nervous system attention deficit disorder medication. Once the FDA gives us approval, we reprioritize everybody else and this will go next. Elite maintained a strong cash position during our transition to sales. We have supported working capital needs as well as R&D pipeline cost, while maintaining our cash levels. The new product launches will substantially increase our profits and revenues. We will see incremental increases over the next two to three quarters. Nothing’s going to happen overnight.

You launch the first product, you’re going to go through the growing pains that Carter described and then starts to become viable. You launch the second, you go through the same thing. So it’s all coming, and it’s coming quarter-after-quarter. Regarding the research and development pipeline, Elite has three ANDA filed that are under review by FDA. Generic dopamine agonist ANDA for the treatment of Parkinson’s, and ANDA for the treatment of pain management, and the central nervous system stimulus ANDA used for ADHD. FDA reviews continue for these products and Elite continues to provide support to any FDA request. Elite will issue a PR upon approval. Now, two of the three products that I mentioned are needle movers. So let me say a few more words about that.

Regarding the CMS application, the FDA asked us to make a couple of minor adjustment. Tighten the spec, move this over here and there, nothing of relevance. But the FDA did request an extra month to review the DMF for the API supplier. So our PDUFA date is November. That was very nice of FDA to do that, because they found that our application itself doesn’t have any issues or all the issues we had, we resolved them over the past year. They had a question to the DMF supplier, and instead of saying, take this back and call us back in a year or in six months or whatever, they actually said, we need another month to resolve some issues, which is really very promising. And we will update you in November once we hear – if we hear from FDA and what their verdict is.

Regarding the pain management and generic oxyContin, it’s one of the common outcomes of a paragraph IV ANDA filing is a lawsuit by the brand company, and we have updated you on that. We’re going through that right now. We agreed with Purdue to renew the litigation hold for six more months. It does not make any sense for us to get engaged with lawsuits with Purdue at this time, because they have enough people suing them and trying to invalidate their patents. So we stepped back and agreed that we will take six months where we don’t go through discovery, we don’t have to spend the money, they don’t have to come after us till we see what’s happening in the landscape. If a judge says patents are invalidated, will move in. If they say they are not, we’re in the same boat as everybody else.

Elite has other products in the formulation development stage that have not reached a reportable milestone yet. Elite continues to make R&D a priority. Regarding the facility and infrastructure, as you know, to keep up with our growth, we needed additional space. So we have taken on an additional 34,000 square feet to support expanding packaging, inventory and warehouse holding. We closed the deal and took possession of the facility last January. The permits were obtained for construction because it’s a part, 34,000 square feet is a part of a building that’s about 85,000 square feet. We have to seal it and close it to make it into pharmaceutical. We build the IT infrastructure, the servers, the cameras, ADT security, all of them are ready. A state of the art packaging line that’s already been qualified and ready.

Department of Health got approval, then the CDS approval. The two remaining things were DEA and FDA. The vault and all the security already. We invited the FDA last week. They showed up Monday, and I am happy to report that the inspection went very well. In my opinion, the DEA takes, usually regulatory agencies in general take 45 days to write the report. I expect approval by the DEA within that time. Before we meet in November for sure, but I believe within 45 days we’ll receive approval from the DEA. The next step is FDA – next and final step is the FDA approval. To get the FDA approval, we have to manufacture or package lots at the facility, put them on three months stability, and then file with the FDA for them to come in and inspect and give us approval.

The lots are being packaged right now. The lines are qualified, including serialization, all of that. They are being made right now placed on stability by next week or the week after. Three months should be about November, I expect that we’ll file towards the end of November, and then it’s a matter of when the FDA can approve it and we’ll update you on that once we know. At the end of the day, once this facility is approved, we should have and be covered from the expansion standpoint for at least five years for manufacturing and longer than that for packaging. In summary, Elite has shown strong growth this quarter. We are executing the company’s strategies for commercial, sales and distribution and research and development. Elite has the best commercial product line it has ever had an excellent pipeline of approved and soon-to-be approved products, and the best financial position in the company’s history.

This puts Elite in a strong position for an M&A or a move to NASDAQ when the time is right. Let’s go to Q&A.

A – Nasrat Hakim: Dianne was kind enough to group your questions. A lot of them were similar, somewhat different, such as what Carter answered. So I’ll start with the production pipeline. Has there had been any feedback or request for information from FDA for the Oxy or central nervous system generic? Oxy is a little overdue, and CNS should be closed. Do you think we have a 50/50 chance of getting approval before November call? Oxy will not be approved until the patent issues are resolved, frankly. And what we are hoping for right now is approvable, okay? If they say it’s approved, it means you can launch. Because of the patent issues, you can’t launch. So what we’re waiting for the FDA to decide on is when they’ll give us approvable unless the court rules first and they’ll change everybody into approve.

What is the expected time line launch for the recently acquired ANDAs is the goal to have all our approved ANDAs from Nordstrom’s [ph] plus methotrexate and APAP with codeine launched within the current fiscal year. That’s a tall order. Product launches, especially ones that involve control substances and most of ours do take time. And frankly, spacing them over to six to eight weeks apart makes a lot of sense because any time you make the product commercially for the first time. The first batch of each strength has to go on stability for three years and it will be on controlled room temperature stability and accelerated. This is a massive amount of work for the lab, and it is in our best interest to space it out. In addition to Codeine and DEA controls and making the stuff and limitations and all of that stuff, but six to eight weeks is a reasonable assumption that you should look at when we launch a product.

Any time we launch a product, six to eight weeks later and other products should follow. As I said earlier, I expect to have at least three products launched within the coming four months.

Carter Ward: Do you have recent IQVIA annual sales for any of the opioids pending launch, Percocet, Norco, Methadone, et cetera?

Nasrat Hakim: Yes, we do. We publish them when we issue the press releases when the products are launched or when the product is approved.

Carter Ward: Will Elite have enough working capital to buy all the API needed when the three new drug repurchases are launched? Or do we have to get more loans?

Nasrat Hakim: I believe we do, but you wouldn’t know for sure until you actually go through the sales. So you see whether we have enough cash will depend on how much we sell initially. A lot of money gets held up in inventory and chargebacks. For example, regarding chargebacks, if a bottle cost a dollar and my customer says, our WAC price is $4 or we set the WAC price at $4. It means that we give them $3 and they give us $4, and that’s how we get the dollar. But the problem with that is that the demand we give them the $3 within 30 days or so, and they give us the $4 in three months so you end up carrying them for 90 days, basically and that’s how they operate until they go distribute it to pharmacies and collect their money and come back to you with it.

So that part, the more you sell, the larger the working capital you need. As of now, we’re fine, but if we are not fine we definitely know where to raise money and how to get it. And the board and I are always willing to help if we cannot get it from a bank, which by now we are in a very good financial position, most likely we’ll be able to get a loan. And by the way, spacing the launches that I spoke of earlier, reduces the burden of working capital because you spread it over time. Another interesting question is, what is REMS [ph] and how does it work? REMS is the risk evaluation and mitigation strategy. As a manufacturer of opioid medication, Elite must be part of the opioid analgesic risk evaluation and mitigation strategy of REMS. Under the requirement of REMS, we, the industry, if you have an opioid application, have to pull in and educate the doctors that prescribe opioids, the pharmacists and the patients on our dime and time about the risk versus benefit of opioids.

And it is a requirement by FDA. You cannot allow to sell an opioid unless you are part of this team. And once you are part of this team, you have to pay a lot of money in order to do all of this. This is separate and distinct from all the fees we pay to states. Some states charge for an opioid license of more than $250,000. Okay, so there are a lot of fees that goes with this. But RIMs is really meant to educate people on the abuse and anti-abuse phenomena of the drug and what can you do to protect yourself and to make sure that nobody else is using it when they don’t need to, risk benefit analysis. New facility, please provide an update regarding the commercialization status of the new facility. Okay, has the additional facility received full certification from FDA?

I just explained that we will be filing in November and hope they’ll come in and inspect then. Is the new warehouse operational and approved by the deFDA? The new warehouse is a little operational and that we can put cartons and things that are non-GMP in it. And it is DEA inspected and verbally told us have no issues. So it will be DEA approved soon. Is there a timeframe concerning the operation of the new facility? Well, as I said, the three things that remain is the DEA approval, which I expect to get in six weeks. The packaging line is done. We just need to make the finish making the lots. We’re making them right now, put them on stability, get the FDA to come in and inspect us after we file in November and get FDA approval. Once we get FDA approval, as I said, this will be a fantastic thing for us because our capacity will be fulfilled for the next five plus years.

That concludes our conference call. We’ll talk again in November. And thank you, Matthew.

Operator: Thank you. Everyone, this concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.