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-à-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-à-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-à-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-à-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.
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-à-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-à-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-à-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-à-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.
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