Depends on who you ask, and on what sort of timeline the person runs on, but this sounded like a decent conference call. The kind of delays you have come to survive through and hope for the best. The share price of the Elite stock took a gnarly 18% hit during this trading day which will go down in history as positively received by some, and "AHHHH THE HORROR" by others. As a neutral observer I'm going to say it was somewhere in the middle.
http://seekingalpha.com/article/3983163-elite-pharmaceuticals-eltp-ceo-nasrat-hakim-q4-2016-results-earnings-call-transcript?part=single Elite Pharmaceuticals, Inc. (OTCQB:ELTP) Q4 2016 Results Earnings Conference Call June 20, 2016 11:00 AM ET
Executives
Nasrat Hakim - President and CEO
Carter Ward - CFO
Analysts
Operator
Good morning, ladies and gentlemen, and welcome to the Elite
Pharmaceuticals’ Conference Call. At this time, all lines have been
placed on a listen-only mode. And we will open the floor for your
questions and comments following the main presentation.
Before management begins speaking, the Company has the following
statements. This conference call contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Including those related to the effects, if any, on future results,
performance or other expectations that may have some correlation to the
subject matter of this conference call.
Listeners are
cautioned that such forward-looking statements involve risks and
uncertainties including, without limitation, its ability to obtain FDA
approvals, the transfers of ANDAs or the timing of such approval
process, delays, uncertainties, inability to obtain necessary
ingredients and other factors not under the control of Elite, which may
cause actual results, performance or achievements of Elite to be
materially different from the results, performance or other expectations
that may be implied by these forward-looking statements.
These forward-looking statements may include statements regarding the
expected timing of approval if at all of SequestOx by the FDA. These
forward-looking statements are not guarantees of future action or
performance. These risks and other factors, including, without
limitation, the Company’s ability to obtain sufficient funding under the
LPC Agreement or from other sources, the timing or results of pending
and future clinical trials, regulatory reviews, and approvals by the
Food and Drug Administration and other regulatory authorities,
intellectual property protections and defenses, and the Company’s
ability to operate as a going concern, are discussed in Elite’s filings
with the Securities and Exchange Commission, including its reports on
forms 10-K, 10-Q and 8-K. Elite undertakes no obligation to obtain any
forward-looking statements, whether as a result of new information,
future events or otherwise.
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, Paul.
Good morning, ladies and gentlemen. My name is Nasrat Hakim. I am
Elite’s Chairman and CEO. This morning, Carter Ward, our Chief Financial
Officer will give us a summary of our trade financials, after which
I’ll come back with final comments, answer some questions that you’ve
already submitted and open the floor for Q&A.
Mr. Ward, you have the floor.
Carter Ward
Thank you, Nasrat. Good morning everybody, and thanks to everyone for
calling in today. Last Wednesday, we filed our 10-K, our annual report;
it was for the fiscal year ended March 31, 2016. We’re in a March fiscal
year here at Elite. The 10-K is available on our investors section on
our website, it is elitepharma.com; it’s also at sec.gov obviously. So,
if you haven’t seen the K yet, please login for our website and get a
copy.
Since the K was published -- and even before that,
we’ve received many questions and comments mostly related to SequestOx,
that’s our -- we used to call it ELI-200, our abuse resistant oxycodone.
Nasrat will naturally give you an update on SequestOx, and I’m sure
there’ll be questions on this when we open up the lines. SequestOx is
also a major factor running through our financial statements, mostly on
the expense side but also in revenues, and I’ll go over that as part of
my overview of key financial points. But, I also want to point out that a
major part of our operations, not related to SequestOx, that has been
quietly and steadily growing into a solid business, but don’t really get
too much publicity on that but that’s our generic manufacturing
segment. So keeping that in mind, just take a few minutes to go through
some of the key areas of our financial statements and starting, as I
always do with P&L statement.
So revenues for the March
2016 fiscal year were $12.5 million that’s compared to $5 million in
fiscal 2015 and $4.6 million in fiscal 2014. Those of you who have been
following up for several years, if you remember, you know how big a deal
it was last year when we just barely broke through the $5 million
revenue mark. This year, we more than doubled last year’s record. So, we
went from $5 million to $12.5 million in revenues. And as I said,
SequestOx did contribute to these record revenues but not as much as our
generic business did.
Manufacturing revenues, which are all
generic products, no SequestOx, these revenues were $8 million this year
compared to less than $4 million last year 2015, and less than $3
million in fiscal 2014. So, this is the steady growth that has been
trending for years. We now have nine product lines generating
manufacturing revenues, they’re performing well, and they’re growing as
evidenced by the manufacturing revenues that have more than doubled in a
single year. Now, this $8 million in manufacturing revenues has
generated $3.5 million in gross profits, which in turn, contributes
significantly to the financing of our overheads and our facility
expansion as well as our contribution to R&D costs.
So,
it’s important to keep in mind that while SequestOx and our abuse
resistant technology gets a lot of attention and for good reason, also
remember that a key plank in our strategic plan is Elite having a
strong, growing and profitable generic business as well, and we do have
that. The generics are a key area of our strategic plan and they are
performing as we hope and as we expect, and all of this is reflected on
our P&L statement which is quite strong.
Moving down the
P&L, the next revenue item is licensing fees and those were $4.5
million in 2016 and that’s compared to $1.1 million in 2014. So, these
revenues more than tripled; we went from 1.1 to 4.5. Now, the $4.5
million in license fees, they include approximately $3.2 million in
SequestOx milestones. So, this is where SequestOx appears and impacts
our P&L statement on the revenue side. But take notice that if you
take away SequestOx, we still had solid growth in the generic products
license to TAGI and Epic. They formed a balance of those license fees.
So, while yes, SequestOx milestones were a very big deal to us last
year, the existing generic license fees are also growing steadily, and
they are contributing to revenue growth as well. So, the takeaway on our
revenues is that the increase from $5 million to $12.5 million was more
due to the steady and sustained growth in our generic operations, and
it was due to SequestOx milestones.
So, moving down the
P&L and getting away from the revenues, the big number, as it always
is, is research and development costs. Now, R&D costs in 2016 this
year were $12.4 million and that’s compared to $14.7 million in 2015.
So, the costs actually went down by $2.3 million. The decrease is mostly
due to the timing of clinical trials and various other R&D costs,
all of fiscal 2015 and most of fiscal 2016 was focused on SequestOx; the
heavy costs of developing that product are now behind us, and we’re
focusing on the next products on our development list. The mix, timing
and cost levels of developing these products, they aren’t the same as
SequestOx, they have different profiles from a cost standpoint, but
regardless, R&D will always remain a significant cost for the
foreseeable future. You should always remember that R&D is our life
blood. The R&D costs of the past are now generating significant
growth today. That’s the general equation that we have to follow, and
it’s something we will continue to apply.
Another metric that
I usually focus on is the comparison between operating loss and R&D
expense. This gives a rough benchmark on the face of the P&L of the
contribution of our commercial generic operations. This year, we had an
operating loss of $8 million, but we had R&D expenses of $12
million. Expenses exceeded the loss. This shows that since the R&D
expenses were greater than the operating loss, it was the R&D costs
that took us from operating profits, which we generated from commercial
operations into the overall operating loss. In 2015, the prior year,
this metric is much different. Our operating loss was around $17 million
while our R&D expenses were less than that, just $15 million. So,
in 2015, the R&D costs which were less than the operating loss
served to increase the loss that was also generated from our generic
operations. So, we had generic operations with the loss increased by the
R&D. This year, we had generic operations with quite a nice profit
partially contributing to the cost of the R&D.
So the
P&L shows just how different this year, this 2016 year was from last
year. It’s a difference we want to see, difference we’ve been waiting
to see, and it’s a very positive sign. One last thing on the P&L
before I move on, the line item I don’t usually mention, and that is
general and administrative expenses; they were essentially unchanged
from 2016 as compared to 2015. So, we’re still a lean Company of 35
employees; we try our best to run a tight shift; we focus on R&D and
operations; and we try to keep these G&A costs as efficient as
possible. Some costs like health insurance and regulatory compliance
have increased quite a bit, really nothing much we can do about that.
But regardless, we still held overall G&A costs at the same level.
So, we work very hard; our efforts are to be lean and efficient
organization, and our P&L reflects that these efforts -- the results
of these efforts.
So, moving over to the cash flow
statement. This year, we had an operating cash burn of $2.8 million and
that’s significantly improved from $15.1 million operating cash burn in
2015. No surprise here. But the cash burn is due to R&D costs. Those
have to be paid, and those are also expense as per GAAP. But once
again, notice the stock difference between 2015 and 2016. In 2015, we
had operating cash burn of $15 million and R&D costs were roughly
the same amount. So, I mean that is our cash burn was mostly due to
R&D, as we expect. This year, we still had an operating cash burn,
but it was less than $3 million, while our R&D costs were more than
$12 million. So, this really shows that our generic operations, our
commercial operations made a solid and significant contribution to the
funding of these R&D costs, really great and telling metric. Once
again, there is a reason our strategic plans include us having a solid
generic foundation, and you look at our cash flow statement and it’s a
good example of why those plans include that.
So, lastly, a
few comments on our balance sheet. Cash as of March 31, 2016 was $11.5
million, current assets were $16.7 million and current liabilities were
$4.7 million. So, do the math, and that leaves sort of working capital
of $12 million. The strongest, the cleanest balance sheet Elite has ever
had. Last year, we saw our first really strong balance sheet of strong
financial position, and this year’s balance sheet has greatly exceeded
that level.
So, to sum things up, our results of operations,
our cash flow and our financial position for the year ended March 31,
2016 were outstanding. It’s by far the best in Elite’s more than 20-year
history. From a finance perspective, we have never been better placed
to finance our products and business development plan on an ongoing
basis.
So, with that, now, our President and CEO, Chairman of the Board, Mr. Nasrat Hakim would like to give an update.
Nasrat Hakim
Thank you, Carter for a very positive financial report. I’ll start with
a status update and then I’ll answer few questions that the
stakeholders submitted to our VP of Investor Relations, Dianne Will,
then we’ll take few questions. But first, the Board of Directors, I’d
like to welcome Dr. Gene Pfeifer to our Board. Gene’s background is most
impressive. He worked for FDA as the lead litigator and Appellate Court
advocate, and briefed FDA cases before the United States Supreme Court
before he joined the industry and worked with the industry for the past
20 plus years. I also would like to welcome Davis Caskey. Davis is our
newest Board member. He has about 40 years of experience. He worked at
ECR Pharma which was bought by HiTech. He established ECR’s sales and
marketing structure, and product distribution format. The most
impressive thing to me about Davis and Gene is that they are both truly
outstanding human being. Other than the impressive resume, they truly
are great people to work and deal with.
The second item I’d
like to update you on is SequestOx. As you all know, we received our --
we filed the application in January 14, 2016. We received a PDUFA date
of July 14, that’s coming up next month, three more weeks or so. Our NDA
has been under active review. The FDA has asked us a host of questions,
all of which we answered. We still await for the final status; we need
to discuss the labeling that will only take place if and when the FDA
choose to have an AdCom meeting, and if they don’t, they will propose
labeling and we’ll go to the next step. As of to-date, we have not
received an AdCom date yet.
Since the last time we spoke, we
have presented our Human Abuse Liability Data in Austin, Texas. We
attended two FDA meetings, one regarding Pfizer’s AdCom and one for
Teva. Both I thought were very positive meetings. I saw the advisory
board, some of them were extremely acknowledgeable and up to date on
what’s happening and others not as much, but the FDA was very clear in
their message on what they’re looking for. Dr. Hertz [ph] made several
statements regarding anti-abuse that this is the way of the future and
she also indicated that as of today, they do not have an IR ADT yet. And
to me that was a very good sign for Elite because to the best of my
knowledge, we’re the only one in the queue at this time.
Third, the merger with Epic: The merger with Epic has affected us in
many ways, positive and negative. We’ve had a change in the Board of
Directors. Epic used to have two and at a time three board members. Now,
they no longer are on our board. It will affect the agreement for
SequestOx potentially. Epic has the right under the agreement to assign
that agreement to an entity that purchases more than 50% of the Company.
So, as of today, PuraCap has the right to take over the agreement,
renegotiate another one or walk away from it. We are in active
negotiations with PuraCap in order to see what is the best thing for
both companies.
This also affects Dantrolene and Loxapin,
they’re products that Epic had in the queue for them to work on that
will lead to strengthening further our generic line. PuraCap’s or Epic’s
new management are outstanding. I had a chance to meet their CEO. He is
an absolutely amazing man and really solid CEO. The management team at
Epic that we’ve had opportunity to meet with them as well, they are
great and very cooperative. We worked very closely with their head of
sales and marketing, an exceptionally talented lady whom you want her on
your team and on the other side.
Next, the facility upgrade.
We are ready for a launch for a product launch. The facility is at its
best and we continue to improve it, but if we get approval, we are ready
for a product launch for SequestOx. We have not started making large
quantities, and that is simply because we’ve learned from Pfizer and
from previous experience, FDA sometimes will give you an advisory, a
committee date that is past the PDUFA date. I do not want to make
millions of dollars worth of product and have the FDA move the outcome
meeting to the fall and in that having a product that will expire or
will have a shortened lifespan. So, we’ll wait till we have a green
light from FDA before we move forward and start manufacturing commercial
launch quantities.
Future products, I updated you in
February that we were watching for Pfizer, because Pfizer beat us to the
punch and filed their AL-02, which is oxy with naltrexone BID before we
did. Now that they have filed and they got a positive result from the
advisory board or positive recommendation, we are looking forward to
them launching their product, so we can hopefully be the generic
product. We need the product to be launched, so we can conduct clinical
trials and study their profile. We are still on target for that. The
only waiting thing is that is that Pfizer has not gotten an approval and
launched yet.
We are proceeding with the rest of the
pipeline including oxy/APAP which originally was ELI-202 which was
oxy/APAP with naltrexone. And as you recall from my update in February,
we were running clinical trials using oxy/APAP and naltrexone and we
were advised by FDA and also by the guidance that they issued that FDA
considers APAP to be anti abuse. So, adding an expensive component like
naltrexone may not work to our advantage. Regardless, we are continuing
with that and you should see a filing definitely very soon. We are still
on target to filing two applications not two NDAs, two applications
this year, and that goal has not changed.
Dianne submitted to
me a host of questions that you guys sent. So, I will take some of them
and then, we’ll switch over and take few questions and answers.
FDA advisory committee review of Pfizer’s AL-02 determined that
oxycodone can be selectively extracted from intact pellets by a number
of straightforward techniques and certain common solvents appear to be
capable of removing naltrexone selectively from the crushed pellets. How
does ELI-200 SequestOx result compare if subjected to the same
criteria?
That’s a very good question. First, the most
important entity in all of our work is the patient. When a patient is in
pain, their primary goal and ours is to give them pain relief.
Therefore, you’re going to give them a pill, whether it’s instant
release or sustained release that needs to allow the drug to get out and
get into their body. So, extracting a product is a foregoing
conclusion. You have to be able to do that to give the pain relief
effect. So, can you extract stuff with normal solvents? Yes, you drink
everything with a glass of water and in due time the medicine comes out.
So, this is actually standard. Can you stop that from happening? No,
not only for anti abuse. If somebody want to kill themselves and they
take 20 aspirins, all the aspirin will come out and it will hurt them.
So, we have to be able to get the product out into the body. So,
extracting Pfizer’s product with common solvent such as even water or
any other product is really what you want done, okay? We don’t want
something that’s so sequestered that doesn’t help you.
Now
the issue becomes, how do you overcome people trying to abuse these
products? There are ways you can, there are ways you can’t; this is why
it’s abuse resistant not foolproof. What can you do? You can interject
certain chemicals that will stop people from snorting a product or
crushing it in their mouth or injecting it. Our product as well as
Pfizer’s are superior when it comes to that. Any time you crush Pfizer’s
product or Elite’s, the naltrexone will spill out and it will render
the opioid ineffective. So, if you crush it and you snort it or you
inject it, you will think it’s a placebo.
Can you, like the
advisory committee member said, put in tablets and a bunch of water and
once they all dissolved and then drink them? Yes, you can; you can do
that with any product just about. So, I actually attended this meeting,
Chris and I did. And I was very pleased with the way Dr. Hertz conducted
their self with that. In that yes, we’re looking for something that’s
anti abuse but it is for certain things such as injectable and
insufflation. We don’t have the technology as of today for somebody or
to stop somebody from taking multiple pills.
Second question
is immediately our campaign planned, if ELI-200 SequestOx receives FDA
approval and becomes the first and only IR ADT with label? Yes, I hope
so. This is something that we have to work with, with our partner. If we
were launching this product, you bet. The answer will be yes. I need to
work with our partner; I need to see how much money we can allocate to
the product. What kind of return we get. But, this is extremely
exciting. ELI-200 or SequestOx could be the very first IR ADT in the
U.S. And Dr. Hertz in the meeting also that was covering Pfizer
indicated that they don’t have any IR ADTs and they’re hoping for some.
So hopefully, we’ll be at and we’ll be at very soon.
In
building SequestOx inventory, what levels of sales are you projecting
for 2017? Honestly, I’m not -- this is a question for the sales and
marketing team that our partner will set up. So, I cannot even predict
anything. I’ve seen multiple models where the sales and marketing team
is so conservative they look for sales of only 1.5% up to 10%. So, that
will [ph] replace. So, once we have something concrete from the experts,
we may share it with you; as of now, the answer is no comment.
Any communication with the FDA recently from ELI-200? Yes, as I
indicate earlier, it’s an active ANDA and they’re asking us a lot of
questions, most of which are really simple, nothing out of the ordinary,
no missing data, no disagreement on any issues. So far, I’m happy with
how things are moving forward.
What is your take on Pfizer
and Teva? So, I already answer that. Is Elite still on target to submit
two additional and as stated in the past CC? Yes, Elite is on target to
submit two additional applications as stated in the other CC. It’s NDAs
or ANDAs; it’s going to be definitely applications. It could be an ANDA
or NDA. The most likely next two findings will be ANDA applications and
they will happen this year.
Paul, you can open the floor for questions.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, the floor is now open for questions.
[Operator Instructions] The first question is coming from Brian
Schneider. [Ph] Brian, your line is live. Please mention your
affiliation and pose your question.
Unidentified Analyst
Great. We’re not going to use the affiliation today. So, great report,
guys. I had a couple of questions. You did a great job from last
quarter, when I asked the question regarding licensing fees, where the
manufacturing rev is going to be coming from. In looking forward beyond
SequestOx and looking at the platform, the technological platform, when
we start talking about what’s required from an expense standpoint,
vis-Ã -vis what you expect your generic revenues -- revenues from your
generics, what kind of deficit do you guys see between the two as far as
where you’re going to be able to grow those revenues from the generics
vis-Ã -vis where the cost of development, be it from trials or
interfacing with the FDA or what have you. How do you project that
outgoing forward? Then, I’ve got a couple of other questions that I’ll
follow-up with.
Carter Ward
You are talking about the cost of development of the new products, the abuse resistant products?
Unidentified Analyst
Yes, the entire -- what do we say that they -- however many
permutations, I think there were 16 or 17 permutations of the technology
with the various opioids. Given -- let’s say that you wanted to bring
the entire pool to market, what the cost of R&D would be, vis-Ã -vis
what you anticipate your revenue stream from your generics are going to
be to offset that, given that you’re ramping up the generic revenues as
well?
Carter Ward
Well, I mean you have to keep in
mind, first of all, not able to bring all 17 products on line at the
same time, it’s just something that’s not -- the resources aren’t there…
Unidentified Analyst
I guess what I’m asking is
what it would take to have the resources there; what is the current
whole? And if you were to want to bring them all simultaneously within a
very short period of time, what kind of resources would be required to
achieve that?
Carter Ward
Well, first of all, this
is a dynamic situation. So, as we get the approval of SequestOx, that’s
going to begin generating revenues which are put back into product
development. Our generic lines are growing, that’s a really huge deal.
So, it’s contributing a lot, we see our generic growth continuing at
this pace, so with the new products being added, just since the end of
this year, since March 31st -- March 31st numbers don’t include any
license fees earned from the royalties that we get from the oxy IR sold
by Epic. That just got launched at the end of our fiscal year and those
numbers are starting to hit now in the 2017 fiscal year. So, there’s a
very dynamic situation here where the products coming on line are
generating profits which are then being put back into product
development. In addition, we still have more of the Lincoln Park equity
line available roughly $17 million, $18 million I believe. And that was
established for the sole purpose of funding these activities. And so,
that will still be used for that as well. So, I mean -- Nasrat, do you
want to comment even more?
Nasrat Hakim
Brian, let
me try and articulate what Carter is trying to say from a different
view. The truth is it’s really hard to give you a number. So, I’m going
to use SequestOx as an example. When we first started the SequestOx, I
sat down with the best-of-the-best in the industry, I met out every
single potential the FDA would ask me for. And we busted for that. And
that run us about like let’s say $7 million to $8 million. We went to
meet with the FDA and they sprung three things on us that we never
thought about that were in the guidance, that were not existence that
added $8 million. So, it nearly doubled the cost of one product. So, if
I’m going to give you an analysis, think about this, this is an IR
product and everybody has seen the table I made which has the IRs, BIDs
and QDs. Take the IRs and multiply them by 15 million; take the BIDs
probably multiply them by 20 million to 30 million, unless they’re
generic and the QDs are even higher than that. I could come up with a
number for you but it wouldn’t be a realistic but just a lot of money.
Unidentified Analyst
No, that’s exactly what I was trying to get at Nasrat. It was exactly
what your cost per abuse deterrent, the full in cost, so in the order of
let’s call it 20 million just to be round. And then I guess the real
question is, what are the odds that you’re going to tap into the Lincoln
Park money, vis-Ã -vis or getting some other sort of credit situations
set up, and then how quickly can you ramp the current generic line or
even acquire additional accretive generic lines? The objective here
ultimately right is to model out what an expected stock price is, and in
order to do that, you need at least some ballpark of cost versus
revenues. And that’s why I’m trying to find out, okay now I know it’s 16
million to 20 million per drug, what kind of rev streams can you
anticipate whether it’s a SequestOx, whether it’s the others that come
on line or generics or even a third party credit facility to go and
offset? And that’s all I’m trying to drive at.
Nasrat Hakim
Right, and these are all things we’re working on. The reason the
Lincoln Park deal -- Lincoln Park deal is not a long term strategy. It’s
a wonderful thing that happened to us. The guys from Lincoln Park are
outstanding and it helped Elite transform the Company. However, raising
money is not easy. You have to go through out, either make it yourself
in which case, we are introducing a lot of other products and over the
next three years I intend to make Elite a viable Company standing in her
own two feet with only her genetic and brand line or you can go ask and
ask people for money. And I have learnt very quickly that that is
extremely expensive. Every time I try to borrow money or discuss a
credit line with somebody to raise another $20 million to take on a
product, the cost would become unbelievable with all the additions then
they add to it. At the end of the day, they will own you, your house,
your dog and your cat, and still not enough. So, everything is on the
table. We have a lot more projects in R&D then we can handle
financially and we have some that we are actively looking for money to
support and discussions with several companies actually that are
interested, and we’re going to get there. I can’t go into any more
detail than that but we’ll get there.
Operator
Thank you. And the next question is coming from Craig Moss. [Ph] Craig,
your line is live. Please mention your affiliation and pose your
question.
Unidentified Analyst
Nasrat, to you and your team, you guys…
Nasrat Hakim
Good morning.
Unidentified Analyst
Good morning. You guys have done an amazing job getting the Company
into this position that you’re in today. I know it’s been a big struggle
and got your doubters, but you’re basically at the point now where you
are very close to your first FDA approval and the validation of Elite’s
technology. My question is and some of them have been raised already by
the people who wrote in and the last call. What from a stockholder’s
perspective, obviously again still on the bulletin board, I doubt that
you are going to be able to get or attract much sponsorship while you
are listed and trading on the bulletin board. What do you think the
timeline is to address this issue, which in terms of the long-term
acceptance of the Company in the financial markets and the ability from a
more strengthen position to borrow money? What are you doing about that
and what do you think the timeline is for that to finally get us moving
in the right direction there?
Nasrat Hakim
Thank
you, Craig. Nothing would please me more than going to NASDAQ. And I
want to do that as soon as we can, but I do not want to do that at any
cost. I truly believe that if we are to have a huge reverse split and up
list on NASDAQ, few people will be happy; the stock will stabilize and
people will make some money and some will be selling, some will be
buying. And before you know, when you start to look at the fundamentals,
we will start to gravitate back to the bulletin board. This is an
extremely important mission for me, not only because I take my job
extremely seriously but also because I am the number one stockholder in
this Company. Most of you know this; I live in a hotel room Monday
through Friday to take care of this Company. This is a project that I am
going to see to success and we’re going to do it right. To that end, I
need fundamentals. We have made a huge leap in the past two years and
some months with Elite going from a million something to 3 million to
now $12 million of revenues; that’s still a small amount of money to me.
We will get there, but we’re going to get there when we have a couple
of really products submitted to FDA and approved. And don’t want to
depress you, I know you’ve always talked all this before, you really
want us to get to NASDAQ; it’s going to take us couple of years. Once we
get there, we’re going to stay there because we’re going to there with
fundamentals. I am hoping for an organic growth and that will probably
take three years, and don’t have to do a massive reverse split, but
realistically on the rate we are going, my gut feeling and this is just
an opinion, I would say two, three years.
Unidentified Analyst
Okay. I appreciate that, that’s an honest answer. You mentioned in your
update that because of the change of ownership at Epic, you’ve been in
discussions with the company, because there was a 50% change in
ownership, the deal probably needs to be confirmed and/or renegotiated.
Being that you’re less than three weeks away from potentially getting
approval this product and you’re ready for launch, when do you expect to
finalize that agreement with the new company?
Nasrat Hakim
That’s another very good question. Epic started as a small company with
a few investors, and they did a sensational job growing the company and
selling it to PuraCap. Throughout the past year, they have been
extremely busy with selling the company. And even though they were
honorable and paid us all the milestones, as you can see from this, they
are non-refundable and they still paid them. They weren’t as focused on
the endpoints. The company that ends up buying them is a very good
company. PuraCap has a brand division and they have a genetic division.
And we’re working closely with them. And there are other alternatives. I
mean if PuraCap is not interested, it’s not end of the world. I would
love to work with PuraCap; they are a great company that controls 68% of
the narcotic market in China. They are growing in the U.S.; they bought
Blu Pharma. They are a very good company. And as I said, I met their VP
of sales and marketing, and she can deliver. The time is short, because
the events and circumstances that happen. If we are to get approval
without an AdCom, hallelujah! We will start make and launch quantities.
And we can also decide whether we want to go at it our self. We’ll have
to raise some money; we have some money but we’ll have to raise some
money as well to do that. So, it’s getting close; it’s getting tough,
but I’m not getting nervous about it, because frankly, they give us
approval, we can start making the large quantities and things will start
to come together.
Unidentified Analyst
Just as a
follow-up to that, if you do, hypothetically get approval in three weeks
and if you haven’t finalized anything and you do decide to go about it
yourself, how do you go from approval and manufacturing to actually the
marketing of this product? I mean, how does market gain acceptance of
this and knowledge of this product if you go on your own at this point? I
mean, to my knowledge, you don’t have a huge domestic sales force or
anything like that?
Carter Ward
We will not.
Craig, by the way, we have been working very closely with entities that
can actually, and they do have sales and marketing forces that they can
actually do the efforts. One of the entities that Epic was working with
we brought it to the table are a great group. I’m not going to mention
any names right now. But they could be a potential of taking on the
product and selling it for us. And we’ve done this before, when we
bought [indiscernible] we were a generic company. We hired externally an
entire sales and marketing group that does that for you.
Unidentified Analyst
That’s awesome. Last question for you, Nasrat, and I’ll let you go. A
lot of investors have been asking recently that it seems like several
years ago when we had an outside company value this Elite at anywhere
from $0.40 to $2 and change a share long before we got to this point. If
you had to just make a general comment today as to how far the Company
has simply come from that point, what would you say in 20 words or less?
Nasrat Hakim
Okay. I would remind you of this.
Few years ago, Epic put a bid for almost 50% of Elite, 40%, 50% need for
$3.75 million. The same company Epic gave us $15 million for the right
to sell one of our products under favorable terms. So that tells you how
far we’ve gone. We will get another evaluation once we are getting
close to go to NASDAQ and of course it will be a NASDAQ firm that it
will be a public knowledge. And hopefully that will be a solid
substantial number.
Unidentified Analyst
Well,
congratulations again to you and the whole team, Nasrat. We’re very
excited to see the first product get approved here shortly. Thank you
again.
Operator
Thank you. And the next question is coming from Jay Dana. [Ph] Jay, please mention your affiliation and pose your question.
Unidentified Analyst
Thanks very much, good morning. I have a couple of questions, so please
don’t disconnect me after the first one. Good morning, Nasrat. Nasrat,
what is the likelihood that you don’t get an AdCom meeting?
Nasrat Hakim
That is an outstanding question, I’ll tell you, everybody tells me,
you’re going to get an AdCom meeting; we’re a 100% certain. From day
one, I said well, yes, chances are, we’ll get one, but I’m not 100%
certain we will. Maybe it’s 90% or 80%, but there’s a chance the FDA may
decide because they’ve seen our technology; they’ve seen it in Embeda.
And if you listen to the AdCom meeting for Pfizer, Dr. Hertz made a lot
of positive comments about Embeda, which is the same technology as ours.
And we are IR not an ER. So, there’s a small chance that they may not
give us an AdCom meeting. However, the vast majority of people believe
that it’s foregone conclusion and it’s coming some time soon.
Unidentified Analyst
So, if that happens, is it likely that the PDUDFA date get’s pushed out and if so by how much?
Nasrat Hakim
They actually -- the FDA doesn’t push out the PDUFA date, what they do
is just say, your PDUFA date is this and your AdCom is let’s say in
September. They never move the PDUFA date; at least they won’t for us, I
don’t think. They’ll say when you get to the AdCom meeting, we’ll
discuss the labeling, which is really the final step on what to write.
But I don’t think they’re going to change the PDUFA date. It’s an
interesting way of pushing the PDUFA date without pushing it. If they
say, they’re going to make a decision in July 14, but then your AdCom is
in September, then their final decision is after September.
Unidentified Analyst
In when?
Nasrat Hakim
I’m saying if they give us AdCom date of September and the PDUFA date
is July 14, in reality, they’re not going to make a decision till after
September, right. So, even though they don’t push the PDUFA date, they
technically do push it.
Carter Ward
He’s using September as an example; we don’t have any definite word on that.
Unidentified Analyst
But the risk here is that this thing could drag out to the end of the year?
Nasrat Hakim
It’s possible, when you’re talking about FDA, absolutely. I mean look
what happened to Pfizer. Pfizer filed their application in February,
they got a PDUFA date of October, the FDA needed three more month of
review and then in January they gave them PDUFA date of June. It took a
year plus. So, it may happen.
Unidentified Analyst
Now, given the situation with Epic, if you do get a positive response
from the FDA, will you get that last milestone payment still?
Nasrat Hakim
I’m not sure. If Epic decides or PuraCap not to honor the contract, I
really don’t know, I need to -- I need the attorneys to look at that.
But if they do say that they would like to be our partner, definitely we
will get it upon approval.
Unidentified Analyst
Now, PuraCap has a brand division and you met with the woman who’s in
charge of sales and marketing, I’ve seen her on the unit, it looks
impressive. But on the other hand, they do not currently service the
pain market in the U.S. if I’m reading it correctly. Please do correct
me if I’m wrong or not. And if that’s the case, do you view them as the
optimum sales and marketing partner or if they’re not interested, if
this is actually an opportunity to work with someone who’s a little more
dialed into the medical community, that’s actually prescribing these
drugs?
Nasrat Hakim
You are correct, in the U.S.
their sales and marketing is not focused on pain management, they do in
China, 68%, as I said of the country’s pain management. However, the
head of sales and marketing is extremely solid and she can do the job.
And we’re working with a consulting firm that actually has an entire
sales and marketing team at their fingertips that they could go add it
themselves. But she’s got what it takes if they choose to keep the
product. And it is their choice. They have the right to say yes and take
over the agreement or say no, okay. But, if they chose to say yes, I
have the utmost trust in her and her team.
Unidentified Analyst
Is it your understanding that when they decided to buy Epic, that in
the back of their mind they had some sort of proliferation of your
products in mind or was that sort of very secondary to their decision to
buy Epic?
Nasrat Hakim
I do believe that they knew of it and they wanted it, that’s why they made us the second payment. We had couple of…
Carter Ward
There’s been two milestones.
Nasrat Hakim
Right, milestones.
Carter Ward
The first one was $5 million when we signed the agreement and the
second one was $2.5 million was paid to us while Epic was in final
negotiations with PuraCap. So that clearly gave us the impression that
PuraCap is very much interested in this product because remember these
milestone payments are non-refundable, so…
Nasrat Hakim
Right, so last February or so, they could have just said we’re not
interested and save themselves $2.5 million but they actually opted to
pay us and to call us and get into talking. And frankly, we we’ve talked
to several consultants, and as I said entities that have their own
sales and marketing teams that good at it alone. And I found the sales
and marketing VP for PuraCap as solid as any of them if not more.
Carter Ward
Yes, also it’s important to keep in mind that this agreement is still
in place and it is still effective. So, while there’s been talks of
tweaks to the agreement, various terms and conditions, there has been no
cancelling of the agreement. The agreement is still there. So, when we
get approval for this product, there is a $7.5 million milestone and
that condition is still effective.
Unidentified Analyst
Okay. And then this is my last topic. This is a little bit higher
level. Okay? I have been involved in Elite as an investor for almost 10
years; it’s been an unbelievable saga from the Bernie Berk era forward.
And I think that for many, many years, a lot of investors in Elite were
operating under the assumption that when the first one or two abuse
deterrent drugs were approved that it could be a potentially significant
portion of the pain market and that this Company would experience a
very rapid ramp and would probably experience profitability in a fairly
reasonable timeframe thereafter.
If you look at what’s
happened to your stock as this call has gone on today, relative to the
first question, as soon as the name Lincoln Park came up and the fear of
more dilution popped into the equation, the stock amenably went down
two bucks. And then, when you started talking about NASDAQ listing maybe
two or three years out, stock went down $0.02 -- stock went down a
little bit more. I think that the whole perception as this call has been
going on is that, we have no idea what the SequestOx ramp is going to
look like, and I think that’s ongoing sort of frustration for investors
and one of the reasons why the stock stays where it is; is it $20
million a year, is it $200 million a year nobody knows.
And
then, the commentary that you’re going to use most likely all of the
profitability from SequestOx assuming it gets approved to finance your
pipeline, which could be $20 million per drug which I think is new
information, I think that the concern here is that, holy cow, you guys
are going to ramp SequestOx and there is going to be more dilution and
no profitability and no NASDAQ listing for two or three more years. This
is all very concerning and somewhat new together here right now.
So, I get the concept you want to build a broad company and then grow
it, but I don’t understand how -- where company with the scenario that
there could be more dilution and no profitability for two or three
years. Could you give me some feedback on your strategic objectives and
when we can expect some profitability?
Nasrat Hakim
That was a long winded and I appreciate that. But what I can tell you
is this. Whatever happened during -- I heard you mention Bernie Berk and
anybody else’s eras, I heard everybody’s problems when I took over as
CEO. From the time I have taken over as CEO, you’ve seen what was
achieved in two years and 10 months; we went from $0.068 to about $0.30
plus. I have a vision, I have a plan I am executing on. I have a lot of
people that have been pushing me to go to NASDAQ too early from former
board members to top people on Wall Street and the answer is no. I have
people trying to get me to borrow money and get in debt, so I can get
projects going and the answer is conditional, and it’s mostly no. I will
get us to where we are going in about three years. I am not going to
lie to you about that and I am not going to pump up the stock or pump it
down. I have a realistic plan that will get us where we are going. The
expectations from the old days may have been valid; I wish I joined
Elite 10 years ago; I could have gotten Oxy BID to the market and we’d
all have been billionaires by now. The problem is for 10 years nothing
happened and now today I am faced with an industry that everybody in
their program wants the anti abuse. We’re no longer unique; we are one
of many. Now, we have Pfizer and Teva and other companies that are
playing in this field. Now, it’s a great honor for little Elite to throw
its hat in the ring and be there with these giants. But the fact it
costs a lot of money, money that we don’t have. How do you get this
money? You’re going to get it through a deal like Lincoln Park, which
really divides the burden among all of us shareholders. You want to
start borrowing money and if a project doesn’t work, these people are
going to come ask for their money and under that condition, we could end
up bankrupt.
We are a solid company today, I know the folks
who’ve been investing for 10 years are frustrated and have been waiting
for a day where things will change. But today, we are a viable Company.
If we don’t want to be ambitious and run R&D like crazy, we’re
profitable. And we’re going to continue on that path till we get to a
point where we are a viable company that gets on to NASDAQ. I cannot do
any more or any faster. But, I’m a cautious guy, who gets the job done.
Unidentified Analyst
Good answer. Thank you.
Nasrat Hakim
Alright. We have time for one more question please.
Operator
Thank you. And the next question is coming from Peter Curry. [Ph]
Peter, your line is live. Please mention your affiliation and pose your
question. Hello, Peter, are you there? Your line is live. Okay. I think
we’ve lost Peter.
Nasrat Hakim
That’s fine. It’s
already noon. So, thank you all for excellent questions, good engagement
and thank you Carter for report on a great quarter. And we’ll talk to
you everybody in couple of months. Thank you, Paul. Thanks everybody.
