ITEM 1 BUSINESS
General
Elite Pharmaceuticals,
Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”, the “registrant”,
“we”, “us” or “our”) was incorporated on October 1, 1997 under the laws of the State of Delaware,
and its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”), was incorporated on August 23, 1990 under
the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of
Nevada.
We are a specialty
pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products, using proprietary
know-how and technology, particularly as it relates to abuse resistant products and the manufacture of generic pharmaceuticals.
Our strategy includes improving off-patent drug products for life cycle management, developing generic versions of controlled-release
drug products with high barriers to entry and the development of branded and generic products that utilize our proprietary and
patented abuse resistance technologies.
We occupy manufacturing,
warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale Facility”).
The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement
Agency (“DEA”) registered facility for research, development and manufacturing.
Strategy
We focus our efforts
on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated New Drug Applications
(“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development of the other products
in our pipeline including the products with our partners; (iv) commercial exploitation of our products either by license and the
collection of royalties, or through the manufacture of our formulations; and (v) development of new products and the expansion
of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.
Our focus is on the
development of various types of drug products, including branded drug products which require New Drug Applications (“NDAs”)
under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Drug Price
Competition Act”) as well as generic drug products which require ANDAs.
We believe that our
business strategy enables us to reduce its risk by having a diverse product portfolio that includes both branded and generic products
in various therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources
thereby allowing us to share costs of development and improve cash-flow.
Commercial Products
We own, license, contract
manufacture or receive royalties from the following products currently being sold commercially:
Product
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Branded
Product Equivalent
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Therapeutic
Category
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Launch Date
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Phentermine
HCl 37.5mg tablets (“Phentermine 37.5mg”)
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Adipex-P®
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Bariatric
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April 2011
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Phendimetrazine
Tartrate 35mg tablets (“Phendimetrazine 35mg”)
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Bontril®
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Bariatric
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November 2012
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Phentermine
HCl 15mg and 30mg capsules (“Phentermine 15mg” and “Phentermine 30mg”)
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Adipex-P®
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Bariatric
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April 2013
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Naltrexone
HCl 50mg tablets (“Naltrexone 50mg”)
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Revia®
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Pain
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September 2013
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Isradipine
2.5mg and 5mg capsules (“Isradipine 2.5mg” and “Isradipine 5mg”)
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n/a
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Cardiovascular
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January 2015
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Oxycodone HCl
Immediate Release 5mg, 10mg, 15mg, 20mg and 30mg tablets (“OXY IR 5mg”, “Oxy IR 10mg”, “Oxy
IR 15mg”, “OXY IR 20mg” and “Oxy IR 30mg”)
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Roxycodone®
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Pain
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March 2016
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Trimipramine
Maleate Immediate Release 25mg, 50mg and 100mg capsules (“Trimipramine 25mg”, “Trimipramine 50mg”,
“Trimipramine 100mg”)
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Surmontil®
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Antidepressant
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May 2017
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Dextroamphetamine
Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg,
15mg, 20mg and 30mg tablets (“Amphetamine IR 5mg”, “Amphetamine IR 7.5mg”, “Amphetamine IR 10mg”,
“Amphetamine IR 12.5mg”, “Amphetamine IR 15mg”, “Amphetamine IR 20mg” and “Amphetamine
IR 30mg”)
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Adderall®
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Central Nervous System (“CNS”)
Stimulant
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April 2019
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Dantrolene
Sodium Capsules 25mg, 50mg and 100mg (“Dantrolene 25mg”, “Dantrolene 50mg”, Dantrolene 100mg”)
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Dantrium®
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Muscle Relaxant
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June 2019
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Dextroamphetamine
Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg,
25mg, and 30mg capsules (“Amphetamine ER 5mg”, “Amphetamine ER 10mg”, “Amphetamine ER 15mg”,
“Amphetamine ER 20mg”, “Amphetamine ER 25mg”, and “Amphetamine ER 30mg”)
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Adderall XR®
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Central Nervous System (“CNS”)
Stimulant
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March 2020
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Note: Phentermine 37.5mg is also referred
to as “Phentermine Tablets”. Phentermine 15mg and Phentermine 30mg are collectively and individually referred to as
“Phentermine Capsules”. Phendimetrazine 35mg is also referred to as “Phendimetrazine Tablets”. Naltrexone
50mg is also referred to as “Naltrexone Tablets”. Isradipine 2.5mg and Isradipine 5mg are collectively and individually
referred to as “Isradipine Capsules”. Oxy IR 5mg, Oxy IR 10mg, Oxy IR 15mg Oxy IR 20mg and Oxy IR 30mg are collectively
and individually referred to as “Oxy IR”. Trimipramine 25mg, Trimipramine 50mg, and Trimipramine 100mg are collectively
and individually referred to as “Trimipramine Capsules”. Amphetamine IR 5mg, Amphetamine IR 7.5mg, Amphetamine IR
10mg, Amphetamine IR 12.5mg, Amphetamine IR 15mg, Amphetamine IR 20mg and Amphetamine IR 30mg are collectively and individually
referred to as “Amphetamine IR Tablets”. Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg are collectively and
individually referred to as “Dantrolene Capsules”. Amphetamine ER 5mg, Amphetamine ER 10mg, Amphetamine ER 15mg. Amphetamine
ER 20mg, Amphetamine ER 25mg and Amphetamine ER 30mg are collectively and individually referred to as “Amphetamine ER Capsules”.
Phentermine
37.5mg
The approved ANDA
for Phentermine 37.5mg was acquired pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”) dated
September 10, 2010 (the “Phentermine Purchase Agreement”).
Sales and marketing
rights for Phentermine 37.5mg are included in the licensing agreement between the Company and Precision Dose Inc. (“Precision
Dose”) dated September 10, 2010 (the “Precision Dose License Agreement”). Please see the section
below titled “Precision Dose License Agreement” for further details of this agreement.
Phentermine 37.5mg
is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Phendimetrazine
Tartrate 35mg
The ANDA for Phendimetrazine
was acquired by Elite in 2013.
Phendimetrazine 35mg
is currently a commercial product being manufactured at the Northvale Facility and distributed by Elite.
Phentermine
15mg and Phentermine 30mg
Phentermine 15mg capsules
and Phentermine 30mg capsules were developed by the Company, with Elite receiving approval from the United States Food and Drug
Administration (“FDA”) of the related ANDA in September 2012.
Sales and marketing
rights for Phentermine 15mg and Phentermine 30mg are included in the Precision Dose License Agreement. Please see the section
below titled “Precision Dose License Agreement” for further details of this agreement.
Phentermine 15mg and
Phentermine 30mg are currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Naltrexone 50mg
The ANDA for Naltrexone
50mg was acquired by Elite in 2010.
Sales and marketing
rights for Naltrexone 50mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision
Dose License Agreement” for further details of this agreement. Naltrexone 50mg is currently being manufactured by Elite
and distributed by TAGI under the Precision Dose License Agreement.
Isradipine 2.5mg
and Isradipine 5mg
The approved ANDAs
for Isradipine 2.5mg and Isradipine 5mg were acquired by Elite in 2013
Isradipine 2.5mg and
Isradipine 5mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by Glenmark,
on an exclusive basis.
Oxycodone 5mg,
Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and Oxycodone 30mg (“Oxy IR”)
We received
notification from Epic in October 2015 of the approval by the FDA of the ANDA for Oxy IR which is owned by Epic. This product
was an Identified IR Product in the Epic Strategic Alliance Agreement Dated March 18, 2009 (the “Epic Strategic Alliance”).
Oxy IR was developed at the Northvale Facility pursuant to the Epic Strategic Alliance, in which we are entitled to a Product
Fee of 15% of Profits through March 2026, as defined in the Epic Strategic Alliance. The first commercial sale of Oxy IR occurred
in March 2016, and sales by Epic of this product are ongoing.
Trimipramine
25mg, Trimipramine 50mg and Trimipramine 100mg
The approved ANDA
for Trimipramine was acquired by Elite in 2017.
Trimipramine 25mg,
Trimipramine 50mg and Trimipramine 100mg are currently a commercial product being manufactured by Elite at the Northvale Facility
and distributed by Glenmark, on an exclusive basis.
Amphetamine
IR Tablets
On December 10, 2018,
the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release
mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate,
Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central
nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy.
Amphetamine IR Tablets
are currently a commercial product being manufactured by Elite and distributed by Lannett Company Inc. (“Lannett”),
on an exclusive basis.
Dantrolene Capsules
The approved ANDAs
for Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg were acquired by Elite in 2013. Dantrolene Capsules are currently a
commercial product being manufactured by Elite at the Northvale Facility and distributed by Lannett, on an exclusive basis.
Amphetamine
ER Capsules
On December 12, 2019,
the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release
mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate,
Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg, and 30 mg tablets. The product is a central nervous
system stimulant and is indicated for the treatment of ADHD and Narcolepsy.
Amphetamine ER Capsules
are currently a commercial product being manufactured by Elite and distributed by Lannett, on an exclusive basis.
Filed products under FDA review
SequestOx™
- Immediate Release Oxycodone with sequestered Naltrexone
SequestOx™ is
our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate.
SequestOx™ is an immediate-release Oxycodone Hydrochloride containing sequestered Naltrexone which incorporates 5mg, 10mg,
15mg, 20mg and 30mg doses of oxycodone into capsules.
In January 2016, the
Company submitted a 505(b)(2) New Drug Application for SequestOx™, after receiving a waiver of the $2.3 million filing fee
from the FDA. In March 2016, the Company received notification of the FDA’s acceptance of this filing and that such filing
has been granted priority review by the FDA with a target action under the Prescription Drug User Fee Act (“PDUFA”)
of July 14, 2016.
On July 15, 2016,
the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™
NDA is complete and the application is not ready for approval in its present form.
On July 7, 2017, the
Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the amount of
time that a drug is present at the maximum concentration in serum) of SequestOxTM was 4.6 hr. with a range of 0.5 hr.
to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a range of 0.5 hr. to 12 hr. A key objective
for the study was to determine if the reformulated SequestOxTM had a similar Tmax to the comparator when taken with
a high fat meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January
30, 2018, the Company reported positive topline results from a pilot study conducted for a modified SequestOx™ wherein,
based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with
a Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has provided
the pilot data to the FDA, requesting clarification as to the requirements for resubmission of the NDA. The FDA has provided guidance
for repeated bio-equivalence studies in order to bridge the new formulation to the original SequestOx studies and also extended
our filing fee waiver until July 2020. Due to the prohibitive cost of such repeated bio-equivalence studies, the Company has paused
development of this product.
There can be no assurances
of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances of the success of
any future clinical trials, or if such trials are successful, there can be no assurances that an intended future resubmission
of the NDA product filing, if made, will be accepted by or receive marketing approval from the FDA. In addition, even if marketing
authorization is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues
or profits would be in amounts that provide adequate return on the significant investments made to secure this marketing authorization.
Oxycodone Hydrochloride
extended release (generic version of Oxycontin®)
On September 20, 2017,
the Company filed an ANDA with the FDA for generic version of Oxycontin® (extended release Oxycodone Hydrochloride). OxyContin®
is approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which
alternative treatment options are inadequate. IMS reported approximately $2.3 billion in revenue for OxyContin® and its equivalents
in 2016. The FDA requested additional information relating to this filing, compliance with which would require significant resources.
Development of this product is currently paused, with the Company evaluating the feasibility of the continued development of this
product.
Generic version
of an antibiotic product
On January 3, 2019,
the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS
Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $85 million
for the twelve months ending September 30, 2019. The product is jointly owned by Elite and SunGen Pharma LLC. Upon approval by
the FDA of this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under review
by the FDA.
There can be no assurances
that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all.
In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or profits,
or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made
to secure these marketing authorizations.
Approved Products Not Yet Commercialized
Loxapine 5mg,
10mg, 25mg and 50mg capsules (“Loxapine Capsules”)
The FDA approved a
transfer for manufacturing of Loxapine Capsules at the Northvale Facility. The Company will provide an update upon launch of the
product. The approved ANDAs for Loxapine Capsules were acquired as part of the 2013 ANDA acquisition between the Company and Mikah
Pharma. Please see the section below titled “Asset Acquisition Agreements” for further details on the 2013 ANDA acquisition
agreement. There can be no assurances that there will be future revenues or profits, or that any such future revenues or profits
would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.
Acetaminophen
and Codeine Phosphate
The Company received
approval from the FDA of an ANDA for a generic version of Tylenol® with Codeine (acetaminophen and codeine phosphate) 300mg/7.5mg,
300mg/15mg, 300mg/30mg and 300mg/60mg tablets. Acetaminophen with codeine is a combination medication indicated for the management
of mild to moderate pain, where treatment with an opioid is appropriate and for which alternative treatments are inadequate. Acetaminophen
with codeine products have annual U.S. sales of approximately $45 million according to IQVIA (formerly QuintilesIMS Health Data).
The Company is not pursuing licensing deals for any opioids at this time until the market changes. The Company will wait for the
market to stabilize before pursuing these opportunities.
There can be no assurances
in relation to any of the above approved products not yet commercialized, that there will be future revenues of profits, or that
any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure
these marketing authorizations.
Discontinued and Transferred Products
As part of standard
operating practices, the Company, from time to time, as relevant, conducts evaluations of all ANDAs owned, consisting, without
limitation, of ANDAs acquired or approved prior to the fiscal year ended March 31, 2020 (“Fiscal 2020”) and ANDAs
acquired or approved during the Fiscal 2020. Such evaluations include, without limitation, costs and benefits relating to each
ANDA owned, with such costs including those fees required under the FDA’s Generic Drug User Fee Amendment (“GDUFA”)
which is significantly influenced by the number of ANDAs owned, and other costs and benefits taking into consideration various
specific market factors for each ANDA. Those ANDAs with a cost/benefit profile not consistent with management criteria for continuation
are identified for disposition and effort is made to determine the optimal course of action to achieve disposition of the ANDA.
During Fiscal 2020,
approved ANDAs for the following products were identified for disposition and transferred to third parties in exchange for cash
consideration received:
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Methadone 5mg and 10mg tablets (“Methadone
Tablets”)
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Phendimetrazine 35mg tablets (the
“Second Phendimetrazine Product”)
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Hydromorphone 8mg tablets (“Hydromorphone
Tablets”)
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Oxycodone and Acetaminophen 5mg/325mg,
7.5mg/325mg, 10mg/325mg tablets (“Oxycodone and Acetaminophen Tablets”)
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Hydrocodone and Acetaminophen 2.5mg/325mg,
5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets (“Hydrocodone and Acetaminophen Tablets”)
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Methadone 5mg and 10mg tablets
The Approved ANDA
for Methadone 5mg and 10mg tablets was sold to Nostrum Laboratories Inc. (“Nostrum”) for cash consideration totaling
$300,000 in February 2020. This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development being charged
against income in the periods incurred. The sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in
an amount equal to the cash consideration received.
Phendimetrazine 35mg tablets
The Approved ANDA
for Phendimetrazine 35mg tablets was sold to Nostrum for cash consideration totaling $300,000 in February 2020. This ANDA was
developed by Elite prior to Fiscal 2020, with the costs of such development being charged against income in the periods incurred.
The sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in an amount equal to the cash consideration
received.
Please note that,
at the time of this transaction, the Company had two approved ANDAs for phendimetrazine 35mg tablets. After selling one of these
ANDAs, the Company retained one approved ANDA for this product, with this ANDA being included in current commercial operations.
Please see the section above titled “Commercial Products” for more details on the ANDA retained.
Hydromorphone 8mg tablets
The Approved ANDA
for Hydromorphone 8mg tablets was sold to Nostrum for cash consideration totaling $300,000 in December 2019. This ANDA had a
book value of zero at the time of its sale to Nostrum. The sale of this ANDA resulted in the recognition of other income during
Fiscal 2020 in an amount equal to the cash consideration received.
Oxycodone and Acetaminophen 5mg/325mg,
7.5mg/325mg, 10mg/325mg tablets
The Approved ANDA
for Oxycodone and Acetaminophen 5mg/325mg, 7.5mg/325mg and 10mg/325mg tablets was sold to Nostrum for cash consideration totaling
$300,000 in November 2019. This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development being charged
against income in the periods incurred. The sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in
an amount equal to the cash consideration received.
Hydrocodone and Acetaminophen 2.5mg/325mg,
5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets
The Approved ANDA
for Hydrocodone and Acetaminophen 2.5mg/325mg, 5mg/325mg, 7.5mg/325mg and 10mg/325mg tablets was sold to Nostrum for cash consideration
totaling $300,000 in November 2019. This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development
being charged against income in the periods incurred. The sale of this ANDA resulted in the recognition of other income during
Fiscal 2020 in an amount equal to the cash consideration received.
Licensing, Manufacturing and Development
Agreements
Sales and Distribution
Licensing Agreement with Epic Pharma LLC for SequestOx™
On June 4, 2015, we
executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic, to market
and sell in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned by us. Epic
will have the exclusive right to market ELI-200 and its various dosage forms as listed in Schedule A of the Agreement. Epic is
responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015 SequestOx™ License
Agreement, Epic will pay us non-refundable milestone payments totaling $15 million, with such amount representing the cost of
an exclusive license to SequestOx™, the cost of developing the product, the filing of an NDA with the FDA and the receipt
of the approval letter for the NDA from the FDA. The 2015 SequestOx™ License Agreement expired on June 4, 2020. During
the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5 million
due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the
Company’s filing of an NDA with the FDA for the relevant product in January 2016. The remaining $7.5 million in non-refundable
payments required FDA approval of the relevant product, a milestone that was not achieved prior to the expiration of the agreement.
Precision Dose
License Agreement
On September 10, 2010,
we executed a License Agreement with Precision Dose (the “Precision Dose License Agreement”) to market and
distribute Phentermine 37.5mg, Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional
products that require approval from the FDA, through its wholly-owned subsidiary, TAGI, in the United States, Puerto Rico and
Canada. Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine
30mg were launched in April 2013. Naltrexone 50mg was launched in September 2013. Precision Dose will have the exclusive right
to market these products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada.
Pursuant to the Precision
Dose License Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage
of the gross profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of the
products. The license fee is payable monthly for the term of the Precision Dose License Agreement. The milestone payments will
be paid in six instalments. The first instalment was paid upon execution of the Precision Dose License Agreement. The remaining
instalments are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of the Precision
Dose License Agreement is 15 years and may be extended for 3 successive terms, each of 5 years.
Master Development
and License Agreement with SunGen Pharma LLC
On August 24, 2016,
as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to
undertake and engage in the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products
are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the
remaining four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the
FDA for Amphetamine IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.
Under the terms of
the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will
share substantially in the profits from sales. Upon approval, the know-how and intellectual property rights to the products will
be owned jointly by Elite and SunGen. Three of the eight products will be jointly owned, three products will be owned by SunGen,
with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having exclusive
marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.
On December
10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®,
an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine
Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product
is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and
Narcolepsy. The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the
Northvale Facility, on a cost-plus basis, and it is currently sold pursuant to the Lannett Alliance, with the first commercial
shipment of this product occurring in April 2019. Please see the section below titled “Strategic Marketing Alliance with
Lannett Company Inc.” for further details on the Lannett Alliance
On January 3, 2019,
the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS
Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million
for the twelve months ending September 30, 2018. The product is jointly owned by Elite and SunGen. Upon approval by the FDA of
this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under review by the FDA.
On December 12, 2019,
the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release
mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate,
Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system
stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). The product is jointly owned
by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost plus basis and it is currently
sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see
the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett
Alliance.
On April 3, 2020,
Elite and SunGen mutually agreed to discontinue any further joint product development activities under the SunGen Agreement.
In May 2020, SunGen,
under an asset purchase agreement, assigned its rights and obligations under the SunGen Agreement for Amphetamine IR and Amphetamine
ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah
will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these
products from SunGen.
There can be no assurances
that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all.
In addition, even if marketing authorization is received, and even for those products for which marketing authorization has already
been received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits
would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations
or provide sufficient financial contributions to support costs of operations and overheads.
Strategic Marketing
Alliance with Glenmark Pharmaceuticals, Inc. USA
On May 22, 2018, and
as amended on August 1, 2018, we entered into a license, manufacturing and supply agreement with Glenmark Pharmaceuticals Inc.
USA (“Glenmark”) to market the two Elite generic products described below in the United States with the option
to add products in the future (the “Glenmark Alliance”).
Pursuant to the Glenmark
Alliance, Glenmark will purchase the products from Elite and then sell and distribute them. In addition to the purchase prices
for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profits are defined as net sales
less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. Glenmark will have
semi-exclusive marketing rights to the ANDA approved generic product, phendimetrazine 35mg tablets, and exclusive marketing rights
to the following ANDA approved generic products: Methadone 10mg, Methadone 5mg, Trimipramine 25mg, Trimipramine 50mg, Trimipramine
100mg, and, effective October 2, 2018, upon expiration of the Epic Manufacturing and License Agreement, exclusive marketing rights
to the following ANDA approved generic products: Isradipine 2.5mg and Isradipine 5mg. The Glenmark Alliance has an initial term
of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior
written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a
product if at any time after the first twelvemonths from the first commercial sale, the average license fee paid by Glenmark for
such product is less than $100,000 for a six month sales period.
The first commercial
shipment of Methadone Tablets pursuant to the Glenmark Alliance occurred in November 2018. The first commercial shipment of Isradipine
Capsules pursuant to the Glenmark Alliance occurred in March 2019. The first commercial shipment of Trimipramine Capsules occurred
in April 2019. The Methadone license was terminated in October 2019 and the Phendimetrazine license was terminated in February
2020. Both products have subsequently been divested (see “Discontinued and Transferred Products” above).
There can be no assurances
that there will be future revenues of profits, earned pursuant to the Glenmark Alliance, or that any such future revenues or profits
would be in amounts that provide adequate return on the significant investments made to secure the marketing authorizations for
products included in the Glenmark Alliance or provide sufficient financial contributions to support costs of operations and overheads.
Strategic Marketing
Alliances with Lannett Company Inc
The Company has entered
into two separate license, supply and distribution agreements with Lannett Company Inc. (“Lannett”). The first agreement,
dated March 6, 2019, relates to products that were co-developed with SunGen (the “Lannett-SunGen Product Alliance”).
The second agreement, dated April 9, 2019, relates to products that were solely developed by Elite (the “Lannett-Elite Product
Alliance”). Both agreements are collectively and individually referred to as the “Lannett Alliance”)
Pursuant to Lannett-SunGen
Product Alliance with Lannett, Lannett will be the exclusive U.S. distributor for Amphetamine IR Tablets and Amphetamine ER Capsules.
Elite manufactures these products, which are purchased, marketed and distributed by Lannett under the Lannett label. In addition
to the purchase prices for the products, Elite will receive license fees well in excess of 50% of net profits, which will be shared
equally with SunGen, pursuant to the SunGen Agreement. Net profits are defined as net sales less the price paid to Elite for the
products, distribution fees (less than 10%) and shipping costs. The Lannett-SunGen Product Alliance has an initial term
of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least three months’ prior
written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a
product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for
such product is less than $100,000 for a six month sales period. In addition to manufacturing fees and license fees, Lannett also
paid a $750,000 milestone, upon the March 2020 commercial launch of Amphetamine ER Capsules. This milestone payment was earned
during March 2020 and was shared equally by Elite and SunGen, pursuant to the SunGen Agreement.
The first commercial
shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg, 12.5mg,
15mg, 20mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in April 2019.
The first commercial
shipment of Amphetamine ER Capsules, a generic version of Adderall XR®, with strengths of 5mg, 10mg, 15mg, 20mg,
25mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in March 2020.
Pursuant to the Lannett-Elite
Product Alliance, Lannett will be the exclusive U.S. distributor for Dantrolene Capsules. The first commercial shipment of Dantrolene
Capsules, with strengths of 25mg, 50mg and 100mg occurred in June 2019.
Pursuant to the Lannett-Elite
Product Alliance, Elite manufactures for Lannett’s purchase, marketing, and distribution of Dantrolene Capsules under the
Lannett label. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of gross
profits. Gross profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%)
and shipping costs. Lannett will have exclusive marketing rights to Dantrolene Capsules. The Lannett-Elite Product Alliance
has an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In
addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least
three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to
terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license
fee paid by Lannett for such product is less than $100,000 for a six month sales period. In addition to manufacturing fees and
license fees.
Products Under Development
Elite’s research
and development activities include developing its proprietary abuse deterrent technology and the development of a range of abuse
deterrent opioid products that utilize this technology or other approaches to abuse deterrence.
Elite’s proprietary
abuse-deterrent technology utilizes the pharmacological approach to abuse deterrence and consists of a multi-particulate capsule
which contains an opioid agonist in addition to naltrexone, an opioid antagonist used primarily in the management of alcohol dependence
and opioid dependence. When this product is taken as intended, the naltrexone is designed to pass through the body unreleased
while the opioid agonist releases over time providing therapeutic pain relief for which it is prescribed. If the multi-particulate
beads are crushed or dissolved, the opioid antagonist, naltrexone, is designed to release. The absorption of the naltrexone is
intended to block the euphoria by preferentially binding to same receptors in the brain as the opioid agonist and thereby reducing
the incentive for abuse or misuse by recreational drug abusers.
We filed an NDA for
the first product to utilize our abuse deterrent technology, Immediate Release Oxycodone 5mg, 10mg, 15mg, 20mg and 30mg with sequestered
Naltrexone (collectively and individually referred to as “SequestOx™”), on January 14, 2016. Please see
“Filed products under FDA review; SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone”
above and please note that continued development of this product is currently paused.
On September 20, 2017,
the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride). Please
see “Filed products under FDA review; Oxycodone Hydrochloride extended release (generic version of OxyContin®”
above. Please note that there can be no assurances of this product receiving marketing authorization or achieving commercialization.
In addition, even if marketing authorization is received and the product is commercialized, there can be no assurances of future
revenues or profits in such amounts that would provide adequate return on the significant investments made to secure marketing
authorization for this product.
The Company is currently
not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested
some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.
On January 3, 2019,
the Company filed an Abbreviated New Drug Application with the US Food and Drug Administration for a generic version of an antibiotic
product. Please see “Filed products under FDA review” above. Please note that there can be no assurances
of this product receiving marketing authorization or achieving commercialization. In addition, even if marketing authorization
is received and the product is commercialized, there can be no assurances of future revenues or profits in such amounts that would
provide adequate return on the significant investments made to secure marketing authorization for this product. Please also see
the section below titled “Master Development and License Agreement with SunGen Pharma LLC”.
Please note that,
while the FDA is required to review applications within certain timeframes, during the review process, the FDA frequently requests
that additional information be submitted. The effect of such request and subsequent submission can significantly extend the time
for the NDA review process. Until an NDA is actually approved, there can be no assurances that the information requested and submitted
will be considered adequate by the FDA to justify approval. The packaging and labeling of our developed products are also subject
to FDA regulation. Based on the foregoing, it is impossible to anticipate the amount of time that will be needed to obtain FDA
approval to market any product. In addition, there can be no assurances of the Company filing the required application(s) with
the FDA or of the FDA approving such application(s) if filed, and the Company’s ability to successfully develop and commercialize
products incorporating its abuse deterrent technology is subject to a high level of risk as detailed in “Item 1A-Risk
Factors-Risks Related to our Business” of this Annual Report on Form 10-K.
Abuse-Deterrent and Sustained Release
Opioids
The abuse-deterrent
opioid products utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These products are
combinations of a narcotic agonist formulation intended for use in patients with pain, and an antagonist, formulated to deter
abuse of the drug. Both, agonist, and antagonist, have been on the market for a number of years and sold separately in various
dose strengths. We have filed INDs for two abuse resistant products under development and have tested products in various pharmacokinetic
and efficacy studies.
The Company is currently
not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested
some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.
Patents
Since our incorporation,
we have secured the following patents, of which two have been assigned for a fee to another pharmaceutical company. Our patents
are:
PATENT
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EXPIRATION DATE
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U.S. patent 6,620,439
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October 2020
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U.S. patent 6,926,909
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October 2020
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U.S. patent 8,182,836
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March 2024
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U.S. patent 8,425,933
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March 2025
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U.S. patent 8,703,186
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March 2025
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Canadian patent 2,521,655
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April 2023
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Canadian patent 2,541,371
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April 2024
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U.S. patent 9,056,054
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June 2030
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E.P. patent 1615623
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April 2024
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U.S. patent 10213388
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June 2030
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We intend to apply
for patents for other products in the future; however, there can be no assurance that any of the pending applications or other
applications which we may file will be granted. We have also filed corresponding foreign applications for key patents.
Prior to the enactment
in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade (“GATT”),
the exclusive rights afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under GATT, the
term of any U.S. Patent granted on an application filed subsequent to June 8, 1995 terminates 20 years from the date on which
the patent application was filed in the United States or the first priority date, whichever occurs first. Future patents granted
on an application filed before June 8, 1995, will have a term that terminates 20 years from such date, or 17 years from the date
of grant, whichever date is later.
Under the Drug Price
Competition Act, a U.S. product patent or use patent may be extended for up to five years under certain circumstances to compensate
the patent holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price Competition
Act are available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent
per drug product. There can be no assurance that we will be able to take advantage of this law.
Also, different countries
have different procedures for obtaining patents, and patents issued by different countries provide different degrees of protection
against the use of a patented invention by others. There can be no assurance, therefore, that the issuance to us in one country
of a patent covering an invention will be followed by the issuance in other countries of patents covering the same invention,
or that any judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued in one country
will be similar to the judicial interpretation given to a corresponding patent issued in another country. Furthermore, even if
our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be
able to design around such patents and compete with us using the resulting alternative technology.
Trademarks
SequestOx™ is
a trademark owned by Elite, for which United States trademark registration is being sought.
We currently plan
to license at least some of our products to other entities in the marketing of pharmaceuticals but may also sell products under
our own brand name in which case we may register trademarks for those products.
Terminated Agreements
Terminated Agreement
- 2015 SequestOx™ License Agreement
On June 4, 2020, the
2015 SequestOx™ License Agreement terminated in accordance with the terms of the agreement.
Other Business Factors and Details
COVID-19
Please see the risk
factor titled “Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected
events could materially and adversely affect our business.”
Government Regulation
and Approval
The design, development,
and marketing of pharmaceutical compounds, on which our success depends, are intensely regulated by governmental regulatory agencies,
in particular the FDA. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions,
including product seizures, injunction actions and criminal prosecution based on products or manufacturing practices that violate
statutory requirements. In addition, administrative remedies can involve voluntary withdrawal of products, as well as the refusal
of the FDA to approve ANDAs and NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory
due process procedures.
Before a drug may
be marketed, it must be approved by the FDA either by an NDA or an ANDA, each of which is discussed below.
NDAs and NDAs
under Section 505(b) of the Drug Price Competition Act
The FDA approval procedure
for an NDA is generally a two-step process. During the Initial Product Development stage, an investigational new drug application
(“IND”) for each product is filed with the FDA. A 30-day waiting period after the filing of each IND is required
by the FDA prior to the commencement of initial clinical testing. If the FDA does not comment on or question the IND within such
30-day period, initial clinical studies may begin. If, however, the FDA has comments or questions, they must be answered to the
satisfaction of the FDA before initial clinical testing may begin. In some instances, this process could result in substantial
delay and expense. Initial clinical studies generally constitute Phase I of the NDA process and are conducted to demonstrate the
product tolerance/safety and pharmacokinetic in healthy subjects.
After Phase I testing,
extensive efficacy and safety studies in patients must be conducted. After completion of the required clinical testing, an NDA
is filed, and its approval, which is required for marketing in the United States, involves an extensive review process by the FDA.
The NDA itself is a complicated and detailed application and must include the results of extensive clinical and other testing,
the cost of which is substantial. However, the NDA filings contemplated by us, which are already marketed drugs, would be made
under Sections 505 (b)(1) or 505 (b)(2) of the Drug Price Competition Act, which do not require certain studies that would otherwise
be necessary; accordingly, the development timetable should be shorter. While the FDA is required to review applications within
a certain timeframe, during the review process, the FDA frequently requests that additional information be submitted. The effect
of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is approved,
there can be no assurance that the information requested and submitted will be considered adequate by the FDA to justify approval.
The packaging and labelling of our developed products are also subject to FDA regulation. It is impossible to anticipate the amount
of time that will be needed to obtain FDA approval to market any product.
Whether or not FDA
approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained
prior to the commencement of marketing of the product in that country. We intend to conduct all marketing in territories other
than the United States through other pharmaceutical companies based in those countries. The approval procedure varies from country
to country, can involve additional testing, and the time required may differ from that required for FDA approval. Although there
are some procedures for unified filings for certain European countries, in general each country has its own procedures and requirements,
many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both
the FDA and foreign regulatory authorities after the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
ANDAs
The FDA approval procedure
for an ANDA differs from the procedure for an NDA in that the FDA waives the requirement of conducting complete clinical studies,
although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the
rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic
effect. “Bioequivalence” compares the bioavailability of one drug product with another, and when established,
indicates that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for
the generic drug and the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent
of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.
The timing of final
FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the
drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may
be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory exclusivity
period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date.
In May 1992, Congress
enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals
and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic
Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual that
has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of
certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing
of approved drugs by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal
of previously approved applications. Neither we nor any of our employees have ever been subject to debarment. We do not believe
that we receive any services from any debarred person.
Controlled Substances
We are also subject
to federal, state, and local laws of general applicability, such as laws relating to working conditions. We are also licensed
by, registered with, and subject to periodic inspection and regulation by the Drug Enforcement Agency (“DEA”)
and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that we
currently develop or may develop in the future may be subject to regulations under the Controlled Substances Act and related statutes.
As we manufacture such products, we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors
of prescription drugs.
cGMP
All facilities and
manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity with
cGMP regulations issued by the FDA. We engage in manufacturing on a commercial basis for distribution of products and operate
our facilities in accordance with cGMP regulations. If we hire another company to perform contract manufacturing for us, we must
ensure that our contractor’s facilities conform to cGMP regulations.
Compliance with
Environmental Laws
We are subject to
comprehensive federal, state and local environmental laws and regulations that govern, among other things, air polluting emissions,
waste water discharges, solid and hazardous waste disposal, and the remediation of contamination associated with current or past
generation handling and disposal activities, including the past practices of corporations as to which we are the legal successor
or in possession. We do not expect that compliance with such environmental laws will have a material effect on our capital expenditures,
earnings, or competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental
laws or regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws
will not have a material adverse effect on our capital expenditures, earnings, or competitive position.
Competition
We have competition
with respect to our principal areas of operation. We develop and manufacture generic products, products using controlled-release
drug technology, products utilizing abuse deterrent technologies, and we develop and market (either on our own or by license to
other companies) generic and proprietary controlled-release and abuse deterrent pharmaceutical products. In both areas, our competition
consists of those companies which develop controlled release, abuse deterrent drugs and alternative drug delivery systems. We do
not represent a significant presence in the pharmaceutical industry.
An increasing number
of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced
or novel drug delivery systems. Some of the major pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized
drug delivery companies. Many of these companies have greater financial and other resources as well as more experience than we
do in commercializing pharmaceutical products. Certain companies have a track record of success in developing controlled-release
drugs. Significant among these are, without limitation, Pfizer, Sandoz (a Novartis company), Mylan Laboratories, Inc., Endo Pharmaceuticals,
Inc., Teva Pharmaceuticals Industries Ltd., Amneal Laboratories, Inc., Mallinckrodt, and Aurobindo. Each of these companies has
developed expertise in certain types of drug delivery systems, although such expertise does not carry over to developing a controlled-release
version of all drugs. Such companies may develop new drug formulations and products or may improve existing drug formulations
and products more efficiently than we can. In addition, almost all of our competitors have vastly greater resources than we do.
While our product development capabilities and, if obtained, patent protection may help us to maintain our market position in
the field of advanced drug delivery, there can be no assurance that others will not be able to develop such capabilities or alternative
technologies outside the scope of our patents, if any, or that even if patent protection is obtained, such patents will not be
successfully challenged in the future.
In addition to competitors
that are developing products based on drug delivery technologies, there are also companies that have announced that they are developing
opioid abuse-deterrent products that might compete directly or indirectly with Elite’s products. These include, but are not
limited to Pfizer Inc., Collegium Pharmaceuticals, Inc., and Purdue Pharma LP.
We also face competition
in the generic pharmaceutical market. The principal competitive factors in the generic pharmaceutical market include: (i) introduction
of other generic drug manufacturers’ products in direct competition with our products under development, (ii) introduction
of authorized generic products in direct competition with any of our products under development, particularly if such products
are approved and sold during exclusivity periods, (iii) consolidation among distribution outlets through mergers and acquisitions
and the formation of buying groups, (iv) ability of generic competitors to quickly enter the market after the expiration of patents
or exclusivity periods, diminishing the amount and duration of significant profits, (v) the willingness of generic drug customers,
including wholesale and retail customers, to switch among pharmaceutical manufacturers, (vi) pricing pressures and product deletions
by competitors, (vii) a company’s reputation as a manufacturer and distributor of quality products, (viii) a company’s
level of service (including maintaining sufficient inventory levels for timely deliveries), (ix) product appearance and labelling
and (x) a company’s breadth of product offerings.
Sources and Availability of Raw Materials;
Manufacturing
A significant portion
of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing
business abroad, including:
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greater possibility for disruption due to transportation or
communication problems;
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the relative instability of some foreign governments and economies;
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interim price volatility based on labor unrest, materials or
equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange rates; and,
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uncertainty regarding recourse to a dependable legal system
for the enforcement of contracts and other rights.
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While we currently
obtain the raw materials that we need from over 20 suppliers, some materials used in our products are currently available from
only one supplier or a limited number of suppliers. The FDA requires identification of raw material suppliers in applications
for approval of drug products. If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could
delay the manufacture of the drug involved.
We have acquired pharmaceutical manufacturing
equipment for manufacturing our products. We have registered our facilities with the FDA and the DEA.
Please see the Risk
Factor in Part I, Item 1A entitled “We are dependent on a small number of suppliers for our raw materials and any delay
or unavailability of raw materials can materially adversely affect our ability to produce products”.
Dependence on One or a Few Major Customers
Each year we have had
one or a few customers that have accounted for a large percentage of our limited revenues, therefore the termination or restructuring
of a contract with a customer may result in the loss of material amount or substantially all of our revenues. We are constantly
working to develop new relationships with existing or new customers, but despite these efforts we may not, at the time that any
of our current contracts expire, have other contracts in place generating similar or material revenue. We have agreements with
Lannett, Glenmark and Precision Dose for the licensing, sales and distribution of products that we manufacture. We receive revenues
to manufacture these products and also receive a profit split or royalties based on in-market sales of the products. Please see
the Risk Factor in Part I, Item 1A entitled “We depend on a limited number of customers and any reduction, delay or cancellation
of an order from these customers or the loss of any of these customers could cause our revenue to decline.”
Our Reporting Segments
We currently operate
in two segments, which are products whose marketing approvals were secured via an ANDA and products whose marketing approvals
were secured via an NDA. ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded
pharmaceuticals. For the years ended March 31, 2020 and 2019 revenue from our ANDA segment were $17.0 million and $6.6 million,
respectively. For the years ended March 31, 2020 and 2019 revenue from our NDA segment were $1.0 million and $1.0 million, respectively.
Segment information
is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have determined
to be the chief executive office, for the purposes of making decisions about allocating resources and assessing performance of
the Company. There are currently no intersegment revenues. Asset information by operating segment is not presented below since
the chief operating decision maker does not review this information by segment.
Employees
As of June 15, 2020,
we had 43 full time employees. Full-time employees are engaged in operations, administration, research, and development. None of
our employees is represented by a labor union and we have never experienced a work stoppage. We believe our relationship with our
employees to be good. However, our ability to achieve our financial and operational objectives depends in large part upon our continuing
ability to attract, integrate, retain, and motivate highly qualified personnel, and upon the continued service of our senior management
and key personnel.
Available Information
We file our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the
Exchange Act electronically with the Securities and Exchange Commission, or SEC. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The
address of that site is http://www.sec.gov.
You may obtain a free
copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those
reports on the day of filing with the SEC on our website at http://www.Elitepharma.com under the Investor Relations tab
for SEC Filings or by contacting the Investor Relations Department by calling (518) 398-6222 or sending an e-mail message to dianne@elitepharma.com.
ITEM 1A. RISK
FACTORS
An investment in the
Company’s Common Stock involves a high degree of risk. You should carefully consider the risks described below as well as
other information provided to you in this report, including information in the section of this document entitled “Forward
Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If
any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely
affected, the value of our Common Stock could decline, and you may lose all or part of your investment.
In addition to the other information contained
in this report, the following risk factors should be considered carefully in evaluating an investment in us and in analyzing our
forward-looking statements.
Risks Related to Our Business
Widespread health problems, including the recent global
COVID-19 pandemic, natural disasters or other unexpected events could materially and adversely affect our business.
Public health outbreaks,
epidemics or pandemics, such as the coronavirus, could materially and adversely impact our business. For example, in December
2019, COVID-19 was reported to have surfaced in Wuhan, China. In March 2020, the World Health Organization declared the COVID-19
outbreak a global pandemic. By April 11, 2020, the President of the United States had issued major disaster declarations for all
fifty states for the first time in the country’s history. COVID-19 has resulted in global business and economic disruption
and extreme volatility in the financial markets as many jurisdictions have placed restrictions on travel and non-essential business
operations and implemented social distancing, shelter-in-place, quarantine and other similar measures for their residents to contain
the spread of the virus. In response to these public health directives and orders, we have implemented alternative working practices
and work-from-home capabilities for appropriate employees, as well as social distancing, modified schedules, shift rotation and
other similar policies at our manufacturing facilities. We have also suspended international and domestic travel on behalf of
the Company. Despite these actions, the Company continues to be exposed to the risk of a significant disruption or ceasing of
all manufacturing or other operations resulting from laws, executive orders or other directives from various governmental authorities
which could require such disruption or ceasing of operations due to our products and or operations being determined to be non-essential
or any other reason for which it has been determined that such actions taken against the Company will further the protection of
the general population from harm that may be caused or related to COVID-19 or any similar threat to public health.
The effects of COVID-19,
including these public health directives and orders and our policies, have had an impact on our business and may in the future
materially disrupt our business, including our manufacturing and supply chain operations by significantly reducing our output,
negatively impact our productivity and delay our product development programs. The global pandemic may have significant impacts
on third-party arrangements, including those with our manufacturing, supply chain and distribution partners, information technology
and other vendors and other service providers and business partners. For example, there may be significant disruptions in the
ability of any or all of these third-party providers to meet their obligations to us on a timely basis, or at all, which may be
caused by their own financial or operational difficulties, including any closures of their facilities pursuant to a governmental
order or otherwise. As a result of these disruptions and other factors, including changes in our workforce availability and increased
demand for any of our products during this pandemic, our ability to meet our obligations to third-party marketing and distribution
partners may be negatively impacted. As a result, the Company, or our third-party providers may deliver notices of the occurrent
of force majeure or similar event under certain contracts which could result in prolonged commercial disputes and ultimately
legal proceedings to enforce contractual performance and/or recover losses. Any such occurrences could result in significant management
distraction and use of resources and, in the event of an adverse judgment, could result in significant cash payments. Further,
the publicity of any such dispute could harm our reputation and make the negotiation of any replacement contracts more difficult
and costly, thereby prolonging the effects of any resulting disruption in our operations. Such disruptions could be acute with
respect to certain of our raw material suppliers where we may not have readily accessible alternatives or alternatives may take
longer to source than usual. While we attempt, when possible, to mitigate our raw material supply risks through stock management
and alternative sourcing strategies, some raw materials are only available from one source. Any of these disruptions could harm
our ability to meet consumer demand, including any increase in demand for any of our products used during a pandemic.
While to date we have
not experienced a significant detrimental change in customer demand, the heightened possibility of changes in customer demand
as the COVID-19 pandemic evolves remains. The current economic crisis and rising unemployment rates resulting from COVID-19 have
the potential to significantly reduce individual disposable income and depress consumer confidence, which could limit the ability
of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain medical procedures in the short-,
medium- and long term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently
performing various medical procedures and an increased portion of the general public are reducing their consumption of medical
services which may result in decreased demand for certain of our products.
Furthermore, we are
unable to predict the impact that COVID-19 may have going forward on the business, results of operations or financial position
of any of our major customers, which could impact each customer to varying degrees and at different times and could ultimately
impact our own financial performance. Certain or many of our competitors may also be better equipped to weather the impact of COVID-19
domestically and may be better equipped to address changes in customer demand. Additionally, our product development programs may
be adversely affected by the global pandemic and the prioritization of production during this pandemic. The public health directives
in response to COVID-19 requiring social distancing and restricting non-essential business operations have in certain cases caused
and may continue to cause delays, increased costs and additional challenges in our product development programs, including obtaining
adequate patient enrolment and successfully bringing product candidates to market. In addition, we may face additional challenges
receiving regulatory approvals as previously scheduled dates or anticipated deadlines for action by the FDA on our applications
and products in development, including dates scheduled for 2020, if any, could be subject to delays beyond our control as regulators
such as the FDA focus on COVID-19.
To the extent our
operating cash flows, together with our cash, cash equivalents, restricted cash and restricted cash equivalents, become insufficient
to cover our liquidity and capital requirements, including funds for any future acquisitions and other corporate transactions,
we may be required to seek third-party financing, and/or engage in one or more capital markets transactions. The COVID-19 pandemic
has resulted in significant disruptions to and volatility in the local, national and global financial markets and, with the equity
line with Lincoln Park Capital expiring on July 1, 2020, there can be no assurance that we would be able to obtain any required
financing on a timely basis or at all. Further, lenders and other financial institutions could require us to agree to more restrictive
covenants, grant liens on our assets as collateral (resulting in an increase in our total outstanding secured indebtedness) and/or
accept other terms that are not commercially beneficial to us in order to obtain financing, as a result of the actual or perceived
impact that financial institutions believe the pandemic will have on our business. Such terms could further restrict our operations
and exacerbate any impact on our results of operations and liquidity that may result from COVID-19.
In addition, a recession
or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our ordinary
shares.
Additionally, COVID-19
could increase the magnitude of many of the other risks described herein and have other adverse effects on our operations that
we are not currently able to predict. For example, the global economic disruptions and volatility in the financial markets could
further depress our ability to obtain or renew insurance on satisfactory terms or at all. Additionally, we may also be required
to delay or limit our internal strategies in the short- and medium-term by, for example, redirecting significant resources and
management attention away from implementing our strategic priorities or executing opportunistic corporate development transactions.
The magnitude of the effect of COVID-19 on our business will depend, in part, on the length and severity of the restrictions (including
the effects of recently announced “re-opening” plans following a recent slowdown of the virus infection rate in certain
countries and localities) and other limitations on our ability to conduct our business in the ordinary course. The longer the
pandemic continues or resurges, the more severe the impacts described above will be on both our domestic business and international
supply chains. The full extent to which COVID-19 may impact our business will depend on future developments, which are highly
uncertain and cannot be predicted with accuracy or confidence, such as the duration of the outbreak, the severity of COVID-19,
the possibility of re-occurrences of outbreaks of COVID-19, future legal requirements, executive orders or other actions requiring
compliance by the Company and general population, or the effectiveness of actions to contain and treat COVID-19, particularly
in the geographies where we or our third party suppliers or other strategic partners operate or our customers and end-users of
our products reside. Taking the speed and frequency of continuously evolving developments with respect to this pandemic, or in
the event of a pandemic relating to something other than COVID-19, we cannot reasonably estimate the magnitude of any impact on
our operations, and the full extent to which COVID-19 or another pandemic may impact, in a material and adverse fashion, our business,
financial condition, results of operations and cash flow, and could cause significant volatility in the trading prices of our
securities.
Furthermore, the occurrence
of one or more unexpected events, including fires, tornadoes, tsunamis, hurricanes, earthquakes, floods, and other forms of severe
hazards in the United States or in other countries in which we or our suppliers operate or are located could adversely affect
our operations and financial performance. We have lost power or had to shut down operations as a result of extreme weather, natural
disasters, most notably Superstorm Sandy. These types of unexpected events could result in physical damage to and complete or
partial closure of one or more of distribution centers or manufacturing facilities, or the temporary or long-term disruption in
the supply of products, and/or disruption of our ability to deliver products to customers. Further, the long-term effects of climate
change on general economic conditions and the pharmaceutical manufacturing and distribution industry in particular are unclear,
and changes in the supply, demand or available sources of energy and the regulatory and other costs associated with energy production
and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run our businesses.
Existing insurance arrangements may not provide protection for the costs that may arise from such events, particularly if such
events are catastrophic in nature or occur in combination. Any long-term disruption in our ability to service our customers from
one or more distribution centers or outsourcing facilities could have a material adverse effect on our operations, our business,
results of operations and stock price.
Our revenues and operating results
could fluctuate significantly
Our revenues and operating
results may vary significantly from year-to-year and quarter-to-quarter as well as in comparison to the corresponding quarter
of the preceding year. Variations may result from one or more factors, including, without limitation:
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Effects of a global pandemic
or similar situation, including, without limitation the COVID-19 pandemic that emerged
in 2020, with such effects to include actions taken by the Company, its suppliers, partners,
competitors, other entities involved in the industry, other entities, and any laws, regulations,
executive orders or other governmental/regulatory actions taken in relation to such a
pandemic or similar circumstance;
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Timing
of approval of applications filed with the FDA;
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Timing
of process validation, product launches and market acceptance of products launched;
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Changes
in the amounts spent to research, develop, acquire, license or promote new and existing
products;
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Results
of clinical trial programs;
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Serious
or unexpected health or safety concerns with our products, brand products which we have
genericized, products currently under development or any other product candidates;
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Introduction
of new products by others that render our products obsolete or non-competitive;
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The
ability to maintain selling prices and gross margin on our products;
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Mix
of product manufactured and sold due to each product having different gross margins;
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The
cost and outcome of litigation, in the event that such occurs in relation to, without
limitation, intellectual property issues, regulatory or other matters;
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The
ability to comply with complex and numerous governmental regulations and regulatory authorities
which oversee and regulate many aspects of our business and operations;
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Changes
in coverage and reimbursement policies of health plans and other health insurers, including
changes to Medicare, Medicaid, and similar state programs, especially in relation to
those products that are currently manufactured, under development or identified for future
development by the Company;
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Increases
in the cost of raw materials contained within our products;
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Manufacturing
and supply interruptions, including product rejections or recalls due to failure to comply
with manufacturing specifications;
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Timing
of revenue recognition relating to our licensing and other agreements;
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The
ability to avoid infringing the intellectual property of others;
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The
ability to protect our intellectual property from being acquired by other entities;
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Our
ability to manage growth and integrate acquired products and assets successfully; and
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The
addition or loss of customers.
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A negative variation
in one, many or all of the above factors could, may or will have a material adverse effect on Elite’s business, results
of operations, financial condition, and cash flow and ability to operate in the future, depending on the nature and magnitude
of the variation(s).
We have a relatively limited operating
history, which makes it difficult to evaluate our future prospects.
Although we have been
in operation since 1990, we have a relatively short operating history and limited financial data upon which you may evaluate our
business and prospects. In addition, our business model is likely to continue to evolve as we attempt to expand our product offerings
and our presence in the generic pharmaceutical market. As a result, our potential for future profitability must be considered
in view of the risks, uncertainties, expenses, and difficulties frequently encountered by companies that are attempting to move
into new markets and continuing to innovate with new and unproven technologies. Some of these risks relate to our potential inability
to:
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obtain regulatory approval of our products;
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manage our growth, control expenditures and align costs with
revenues;
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attract, retain, and motivate qualified personnel; and respond
to competitive developments.
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Sustain operations during a global pandemic or similar situation,
such as the COVID-19 global pandemic first identified in 2020.
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If we do not effectively
address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability or successfully
develop any products, resulting in a material adverse effect on Elite’s business, results of operations, financial condition,
and cash flow and ability to operate in the future.
We have not been profitable and may
not be profitable in the future.
To date, we have not
been profitable, and we may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have
sustained losses from operations in each year since our incorporation in 1990. During the years ended March 31, 2020 and 2019,
we incurred net losses from operations of approximately $2.3 million and $9.2 million, respectively. In addition, in certain years
prior to the year ended March 31, 2020, including, without limitation, for the year ended March 31, 2019, the auditor’s opinion
on the financial statements were qualified with respect to there being substantial doubt as to the Company’s ability to continue
as a going concern due to continued losses not being sufficiently offset by operating revenues. A failure to generate sufficient
revenues to offset related costs of operations will have a material adverse effect on our business, results of operations, financial
condition, cash flow and ability to operate in the future.
Our ability to fund our operations,
maintain liquidity and meet our financing obligations is reliant on our operations, which are subject to significant risks and
uncertainties
We rely on cash generated
by operations as well as access to financial markets, such as the equity line with Lincoln Park and equipment financings, to fund
our commercial, product development and other operations, maintain liquidity and meet our financial obligations. The equity line
with Lincoln Park expires on July 1, 2020 and there can be no assurances as to the securing of a capital facility beyond July
1, 2020 and that even if we are able to secure such a facility, there can be no assurances as to the levels of cost and potential
dilution that would be related to such a facility.
Our operations are
also subject to many significant risks and uncertainties, as described, without limitation, in this “Risk Factors”
section, including, without limitation, those risks related to the effects of a global pandemic such as or similar to the COVID-19
pandemic, competition in the markets in which we operate, litigation risks, government investigations, including those related
to our sale, marketing and/or distribution of prescription opioid medications in prior periods, and others. Any negative development
or outcome in connection with any or all of these risks and uncertainties could result in significant consequences, including,
without limitation, one or more of the following:
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The dedication of a substantial
portion of our cash flows from operations to the payment of legal or related expenses,
resulting in these same funds being unavailable for other purposes, including, without
limitation, debt service, operations, capital expenditures, product development and future
business opportunities;
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A limitation in our ability
to adjust to changing market conditions, causing us to be more vulnerable to periods
of negative or impaired growth in the general economy or in our business, resulting the
company being put at a competitive disadvantage as a result of a decreased or unavailable
ability to engage in capital spending and take all other actions that would otherwise
be required to ensure growth and competitiveness;
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A limitation in our ability
to attract and retain key personnel;
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A decrement in our debt service
and compliance obligations related to certain of our outstanding debt obligations, exposing
us to events of default and reduced credit ratings, which in turn lead to increased capital
costs and potential unavailability of capital;
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An overall inability to fund
our operations and liquidity needs.
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The occurrence or
possibility of one or more of these or similar events may cause us to pursue one or more significant corporate transactions as
well as other remedial measures, including refinancing all or part of our then-existing indebtedness, selling assets, reducing,
delaying or eliminating capital expenditures, seeking to raise additional capital or pursuing internal reorganizations, restructuring
activities, strategic alliances, or cost-saving initiatives. Any refinancing of our substantial indebtedness could be at significantly
higher interest rates, which will depend on both the conditions of the market as well as the Company’s finances at such
time, and may also require our compliance with covenants that could be more onerous than current, which in turn could result in
the further restriction of our business operations. Any refinancing may also increase the amount of our secured indebtedness.
In addition, the terms of existing or future debt agreements may restrict us from adopting any of the alternatives. Internal reorganizations,
restructuring activities, asset sales and cost saving initiatives may also be complex and could entail significant costs and charges
or could otherwise negatively impact shareholder value. There can also be no assurance that we will be able to accomplish any
of these alternatives on terms acceptable to us, or at all, or that even if accomplished, that the intended results and benefits
would be realized.
We most likely will require additional
financing to meet our business objectives.
We most likely will
need additional funding to accomplish our plans to conduct the clinical development and commercialization of a range of multiple
abuse resistant opioids or initiate, continue or complete the development of additional generic products already identified for
development or currently in development.
As of March 31, 2020, we had cash on hand of approximately $1.1 million and a working
capital surplus of $1.6 million, and, for the fiscal year ended March 31, 2020, we had losses from operations totaling $2.3 million,
net other income totaling $0.05 million and net loss of $2.2 million.
On May 1, 2017, we
entered into another purchase agreement (the “2017 LPC Purchase Agreement”), together with a registration rights
agreement (the “2017 LPC Registration Rights Agreement”), with Lincoln Park. Under the terms and subject to
the conditions of the 2017 LPC Purchase Agreement, we have the right to sell to and Lincoln Park is obligated to purchase up to
$40 million in shares of our common stock, subject to certain limitations, from time to time, over the 36-month period commencing
on June 5, 2017 and expiring on July 1, 2020.
While growth in our
current generic product line, consisting of Phentermine Tablets, Phentermine Capsules, Phendimetrazine Tablets, Naltrexone Tablets,
Isradipine Capsules, Trimipramine Capsules, Oxy IR, Amphetamine IR Tablets, Amphetamine ER Capsules and Dantrolene Capsules, combined
with manufacturing, profit split and royalty revenues earned pursuant to the Lannett Alliance, the Glenmark Alliance, the Precision
Dose License Agreement, from sales of Oxy IR by Epic, and successful commercialization of other products in our product development
pipeline, may lead to eventual profitability, there can be no assurances of Elite becoming profitable. Furthermore, there can
be no assurances of the continuation revenues being earned from the current generic product line, no assurances of Elite’s
successful commercialization of other products in our development pipeline, and no assurances of Elite’s ability to continue
as a going concern. In addition, there can be no assurances of Elite being able to raise additional funds in a timely manner,
on acceptable terms, if needed to support commercial operations resulting in a material detrimental effect on Elite’s ability
to become profitable and accordingly being a material factor to the detriment of Elite’s ability to continue as a going
concern as well as having a material adverse effect on our business, results of operations, financial condition, and cash flow
and ability to operate in the future.
To sustain operations
and meet our business objectives we must be able to commercialize our products and other products or pipeline opportunities. If
we are unable to timely obtain additional financing, if necessary, and/or we are unable to timely generate greater revenues from
our operations, we will be required to reduce and, possibly, cease operations and liquidate our assets. No assurance can be given
that we will be able to commercialize the new opportunities or consummate such other financing or strategic alternative in the
time necessary to avoid the cessation of our operations and liquidation of our assets.
Furthermore, the capital
and credit markets have experienced extreme volatility. Disruptions in the credit markets make it harder and more expensive to
obtain funding. In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability
of additional financing will depend on a variety of factors such as market conditions and the general availability of credit.
Future debt financing may not be available to us when required or may not be available on acceptable terms, and as a result we
may be unable to grow our business, take advantage of business opportunities, or respond to competitive pressures.
Please also see the risk factor titled
“Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events,
could materially and adversely affect our business”.
We have in prior years, identified material
weaknesses in our internal control over financial reporting which could, if not remediated, adversely affect our ability to report
our financial condition, cash flows and results of operations in a timely and accurate manner and/or increase the risk of future
misstatements, which could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares and/or debt securities to decline.
Our management is responsible
for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the
Exchange Act.
During the prior fiscal
year ended March 31, 2019, the Company identified certain material weaknesses in internal controls over financial reporting which
were remediated during the fiscal year ended March 31, 2020. A material weakness is a deficiency, or a combination of deficiencies,
in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected on a timely basis. The remediation actions taken required the
retention of additional personnel and consultants, the continued retention of which is subject to the Company’s financial
condition.
Despite the successful
remediation of material weaknesses identified in the prior fiscal year, there can be no assurances of the continued operation of
controls, due to the financial burden such controls place on the Company, as well as the effects of other operating challenges,
such as the COVID-19 global pandemic or similar situation, which may result in our inability to maintain an environment of internal
controls over financial reporting that does not have material weaknesses.
Furthermore, additional
material weaknesses in our internal controls may be discovered or occur in the future that may materially adversely affect our
ability to report our financial condition and results of operations in a timely and fairly stated manner and there will be an increased
risk of future misstatements.
Although we regularly
review and evaluate internal controls systems to allow management to report on the effectiveness of our internal controls over
financial reporting, we may discover additional weaknesses in our internal controls over financial reporting or disclosure controls
and procedures. The next time we evaluate our internal controls over financial reporting and disclosure controls and procedures,
if we identify one or more new material weaknesses or are unable to timely remediate our previously identified material weaknesses,
we would be unable to conclude that our internal controls over financial reporting or disclosure controls and procedures are effective.
If we are unable to conclude that our internal controls over financial reporting or our disclosure controls and procedures are
effective, or if our independent registered public accounting firm expresses an opinion, if such is required, that our internal
controls over financial reporting is ineffective, we may not be able to report our financial condition and results of operations
in a timely and fairly stated manner, which could have a material adverse effect on our business, financial condition, cash flows
and results of operations and could cause the market value of our common shares to decline. In addition, any potential future restatements
could subject us to additional adverse consequences, including sanctions by the SEC, shareholder litigation and other adverse actions.
Moreover, we may be the subject of further negative publicity focusing on such financial statement adjustments and resulting restatement
and negative reactions from our shareholders, creditors or others with whom we do business. The occurrence of any of the foregoing
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause
the market value of our common shares to decline.
We have significant intangible assets
on our balance sheet. Consequently, potential impairment of intangible assets may have an adverse material effect on our profitability.
Intangible assets
represent a significant portion of our assets. As of March 31, 2020, intangible assets were approximately $6.6 million, or approximately
27% of our assets.
Generally accepted
accounting principles in the United States (“GAAP”) requires that intangible assets be subject to regular impairment
analysis to determine if changes in circumstances indicate that the value of the asset as recorded may not be recoverable. Such
events or changes in circumstances are an inherent risk in the pharmaceutical industry and often cannot be predicted. However,
should a change in circumstance occur, requiring the impairment of an intangible asset, the result of such an impairment may have
an adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
Rising insurance costs, as well as
the inability to obtain certain insurance coverage for risks faced by us, could negatively impact profitability
The cost of insurance, including directors and officer insurance,
workers compensation, product liability, truck and general liability insurance have increase significantly in recent years and
may continue to increase in the future. We have increased deductibles and/or decreased coverages to mitigate some of these costs.
These insurance premium increases, as well as our increased risk due to reduced coverage and increased deductibles could have an
adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
Furthermore, certain
insurance coverages may not be available to us for risks faced by us, or the coverage we are able to obtain for certain risks
may not be adequate to fully reimburse the potential damages. Should either of these events occur, the lack of adequate insurance
to cover the entire cost of damages could have an adverse material effect on our business, financial condition, results of operations,
cash flows and stock price.
A notice of default was issued by the
New Jersey Economic Development Authority in relation to prior obligations of our tax-exempt bonds. Although we are current in
our payments under these bonds, if the principal balances due under these bonds are accelerated pursuant to the notice of default,
our ability to operate in the future will be materially and adversely affected.
Although we are, and
have been for some time, current in our payments under the NJEDA Bonds, we previously were in default and a notice of default
was issued in March 2009. There can be no assurances of Elite making principal and interest payments in the amounts and on the
dates specified the NJEDA Bond agreement. The failure by Elite to make principal and/or interest payments required by the NJEDA
Bonds, could result in the increased possibility of an acceleration of amounts due pursuant to such notice of default previously
issued, with such an acceleration having a material adverse effect on Elite’s business, results of operations, financial
condition, cash flow and ability to operate in the future.
For more information
on the NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations; Liquidity and Capital Resources; NJEDA Bonds”.
We have substantial indebtedness which
may adversely affect our financial health
We currently have
substantial indebtedness. Total liabilities as of March 31, 2020, were $14.3 million, with such amount including, without
limitation, $4.3 million in various loans, leases and bonds payable, $3.6 million in derivative liabilities, and $6.4 million
in current payables and accruals. The consequences of this substantial indebtedness could include:
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An increase in our vulnerability
to general economic and industry conditions, including recessions, depressions, effects
of global pandemics such as the COVID-19 pandemic, significant inflation and other financial
market volatility;
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Exposure to the risk of increased
interest rates;
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The Company being required
to dedicate a substantial portion of cash flow from operations for debt service and the
attendant result of a diminished ability to fund working capital, capital expenditures
and other expenses;
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A limitation in our flexibility
in planning for, or reacting to, changes in our business and the industry in which we
operate;
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Our being at a competitive
disadvantage as compared to competitors with less indebtedness; and
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A limitation in our ability
to borrow additional funds that may be needed to operate and expand our business.
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If our manufacturing facilities are
unable to manufacture our products or the manufacturing process is interrupted due to failure to comply with regulations or for
other reasons, it could have a material adverse impact on our business.
If our manufacturing facility or the facilities of any of our
suppliers fail to comply with regulatory requirements or encounter other manufacturing difficulties, it could adversely affect
our ability to manufacture and supply products. All facilities and manufacturing processes used for the manufacture of pharmaceutical
products are subject to inspection by regulatory agencies at any time and must be operated in conformity with current good manufacturing
practice (“cGMP”) and, in the case of controlled substances, DEA regulations. Compliance with the FDA’s cGMP
and DEA requirements applies to both drug products seeking regulatory approval and to approved drug products. In complying with
cGMP requirements, pharmaceutical manufacturing facilities must continually expend significant time, money and effort in production,
recordkeeping, quality assurance and quality control so that their products meet applicable specifications and other requirements
for product safety, efficacy and quality. Failure to comply with applicable legal requirements subjects us, our manufacturing facilities
and the facilities of our third-party suppliers to possible legal or regulatory action, including, without limitation, shutdown,
which may adversely affect our ability to supply the product. Additionally, our manufacturing facilities, and those of our third
party suppliers may face other significant disruptions due to labor strikes, failure to reach acceptable agreement with labor unions,
infringement of intellectual property rights, vandalism, natural disaster, storm or other environmental damage, civil or political
unrest, export or import restrictions or other events. Were we not able to manufacture products at our manufacturing facilities
or were our third party suppliers unable to manufacture products at their facilities because of regulatory, business or any other
reasons, the manufacture and marketing of these products would be interrupted. This could have a material adverse impact on our
business, results of operation, financial condition, cash flows, competitive position and ability to operate.
Any delays or unanticipated expenses
in connection with the operation of sole facility could have a material adverse effect on our business.
All of our manufacturing
operations are conducted at the Northvale Facility. A significant disruption at this facility, even on a short-term basis, whether
due to, without limitation, an adverse quality or compliance observation, including a total or partial suspension of production
and/or distribution by regulatory authorities, an act of God, civil or political unrest, force majeure situation or other events
could impair our ability to produce and ship products on a timely basis, and could, among other consequences, subject us to exposure
to claims from customers. Any of these events could have a material adverse effect on our business, results of operations, financial
condition, and cash flows.
We may discontinue the manufacture
and distribution of certain existing products, which may adversely affect our business, results of operations, financial condition,
and cash flows.
As part of regular
evaluations of product performance, we may determine that it is in our best interest to discontinue the manufacture and distribution
of certain of our products. We cannot guarantee that we have correctly forecasted, or will correctly forecast in the future, the
appropriate products to discontinue or that a decision to discontinue various products is prudent if market conditions change.
In addition, there can be no assurances that the discontinuance of products will reduce operating expense or no cause the incurrence
of material charges associated with such a decision. Furthermore, the discontinuance of existing products, entails various risks,
including, without limitation, the ability to find a purchaser for such products, if there is a decision to sell the product,
as well as the risk that the purchase price obtained will not be equal to at least the book value of the net assets relating to
such products. Other risks associated with a product discontinuance, include, without limitation, managing the expectations of
and maintaining good relations with our customers who previously purchased a discontinued product from us, and the effects such
would have on future sales to these customers. We may also incur significant liabilities and costs associated with our product
discontinuance. All of the foregoing could have a material adverse effect on our business, results of operations, financial condition,
and cash flows.
Our operations
could be disrupted if our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are subject
to cyber-attacks.
Our business depends
on the efficient and uninterrupted operation of our computer and communications systems and networks, hardware and software systems
and our other information technology. We collect and maintain information, which includes confidential and proprietary information
as well as personal information regarding our customers and employees, in digital form. Data maintained in digital form is subject
to risk of cyber-attacks, which are increasing in frequency and sophistication. Cyber-attacks could include the deployment of
harmful malware, viruses, worms, and other means to affect service reliability and threaten data confidentiality, integrity and
availability. Despite our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a future
data compromise cannot be eliminated entirely, and risks associated with intrusion, tampering, and theft remain. In addition,
we do not have insurance coverage with respect to system failures or cyber- attacks. A failure of our systems, or an inability
to successfully expand the capacity of these systems, or an inability to successfully integrate new technologies into our existing
systems could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
We
also have outsourced significant elements of our information technology infrastructure to third parties, some of which may be
outside the U.S. Accordingly, significant elements of our information technology infrastructure, require our management of multiple
independent vendor relationships with third parties who may or could have access to our confidential information. The size and
complexity of our information technology systems, and those of our third-party vendors with whom we contract, make such systems
potentially vulnerable to service interruptions. The size and complexity of our and our vendors’ systems and the large amounts
of confidential information that is present on them also makes them potentially vulnerable to security breaches from inadvertent
or intentional actions by our employees, partners, or vendors, or from attacks by malicious third parties.
The
Company and its vendors’ sophisticated information technology operations are spread across multiple, sometimes inconsistent,
platforms, which pose difficulties in maintaining data integrity across systems. The ever-increasing use and evolution of technology,
including cloud-based computing, creates opportunities for the unintentional or improper dissemination or destruction of confidential
information stored in the Company’s systems.
We are dependent on a small number
of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely affect our ability
to produce products.
The FDA requires identification
of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier,
FDA approval of a new supplier could delay the manufacture of the drug involved.
In addition, some
materials used in our products are currently available from only one supplier or a limited number of suppliers and there is a
risk of a sole approved supplier significantly raising prices. Please note that such an occurrence has taken place recently, wherein
significant price increases from a sole supplier greatly reduced profit margins, sales, and delayed product launches. These occurrences
were ultimately resolved by the successful FDA approval of an alternate supplier, with such approval process being lengthy and
costly.
Further, a significant
portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of
doing business abroad, including, without limitation:
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greater possibility for disruption due to transportation or
communication problems;
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the relative instability of some foreign governments and economies;
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interim price volatility based on labor unrest, materials or
equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange rates; and,
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uncertainty regarding recourse to a dependable legal system
for the enforcement of contracts and other rights.
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In addition, patent
laws in certain foreign jurisdictions (primarily, but not necessarily, in Europe) may make it increasingly difficult to obtain
raw materials for research and development prior to expiration of applicable United States or foreign patents. Any delay or inability
to obtain raw materials on a timely basis, or any significant price increases that cannot be passed on to customers, can materially
adversely affect our ability to produce products. This can materially adversely affect our business and operations.
We depend on a limited number of customers
and any reduction, delay or cancellation of an order from these customers or the loss of any of these customers could cause our
revenue to decline.
Each year we have
had one or a few customers that have accounted for a large percentage of our limited revenues therefore the termination of a contract
with a customer may result in the loss of substantially all of our revenues. We are constantly working to develop new relationships
with existing or new customers, but despite these efforts we may not, at the time that any of our current contracts expire, have
other contracts in place generating similar or material revenue. We have agreements with Lannett, Glenmark and Precision Dose
for the sales and distribution of products that we manufacture. We receive revenues to manufacture these products and also receive
a profit split or royalties based on in-market sales of the products.
In addition, since
a significant portion of our revenues is derived from a relatively few customers, any financial difficulties experienced by any
one of these customers, or any delay in receiving payments from any one of these customers, could have a material adverse effect
on our business, results of operations, financial condition, and cash flows.
We are dependent on third parties to
supply raw materials used in our products and to provide services for certain core aspects of our business. Any interruption or
failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with
us could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We rely on third parties
to supply raw material used in our products. In addition, we rely on third party suppliers, distributors and other third party
service providers to provide services for certain core aspects of our business, including, without limitation, manufacturing,
warehousing, freight and distribution, medical affairs services, regulatory compliance activities, sales and marketing, clinical
studies, lab services and other technical and financial services. Many such third-party suppliers and contractors are subject
to requirements proscribed by FDA, DEA or both. Our business and financial viability are dependent on the continued supply of
goods, materials and services, by these third parties, their regulatory compliance and on the strength, validity and terms of
our various contracts and arrangements with these third parties. Any interruption or failure by our third party suppliers, distributors
and other third party service providers to meet their obligations pursuant to the various agreements with us on schedule or in
accordance terms and/or expectations, or any termination by these third parties of their arrangements with us, which in each case,
could be the result of one or more factors outside of our control, could delay or prevent the development, approval, commercialization
or manufacture of our products, result in non-compliance with applicable laws and/or regulations, cause us to incur failure to
supply penalties, disrupt our operations, increase the cost of our operations or cause harm to our reputation in the industry,
any or all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows
and stock price. We may also be unsuccessful in resolving any underlying issues with such suppliers, distributors or other third-party
service providers or in replacing them within a reasonable time frame on commercially reasonable terms.
Elite’s pipeline consists of
products in various stages of development, including products in early development.
Elite’s product
pipeline, including the paused development of its abuse deterrent opioid products, are in various stages of development. Prior
to commercialization, product development must be completed that could include scale-up, clinical studies, regulatory filing,
regulatory review, approval by the FDA, and/or other development steps. Development is subject to risks. We cannot assure you
that development will be successful, or that during development unexpected delays might occur or additional costs might be incurred.
Failure to bring to commercialization any of the products already in development by Elite will have a material adverse effect
on Elite’s ability to operate in the future.
The failure to successfully identify,
develop, commercialize and market new products most likely will result in a material adverse effect on our ability to operate
in the future.
To sustain current
operations, engender business growth, achieve current and future revenues and profitability, we significantly depend on our ability
to successfully identify, develop, commercialize and market new pharmaceutical products., including, without limitation, our own
products as well as those that may be developed in partnership with other entities, such as those that were previously developed
with SunGen pursuant to a now terminated product development agreement. As
a result, we must continually develop, test and manufacture new products, which must meet regulatory standards to receive requisite
marketing authorizations.
The process of developing
and obtaining regulatory approvals for new products is time-consuming, costly and inherently unpredictable. There are direct,
indirect, known and unknown risks inherent in the development of pharmaceuticals, including, without limitation, products which
initially show promise in preliminary pharmacological or marketing studies, but fail to yield the positive results consistent
with initial indications. Products we are currently developing may not receive the regulatory approvals or clearances necessary
for us to market them and, if approved, we may be unable to successfully commercialize them on a timely basis or at all, or if
commercialized, revenues and profits achieved from the sale of such products might not reach levels that provide sufficient return
on those costs incurred during the commercialization process.
The successful commercialization
of a product is subject to a number of factors, including:
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The
timely filing of any NDA, ANDA or other regulatory submission applicable to our product
candidates;
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Any
adverse development or perceived adverse development with respect to the applicable regulatory
agency’s review of such regulatory submission and approval for the indication sought;
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The
effectiveness, ease of use and safety of our products as compared to existing products;
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Customer
demand and the willingness of physicians and customers to adopt our products over products
with which they may have more loyalty or familiarity and overcoming any biases towards
our products;
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The
cost of our product compared to alternative products and the pricing and commercialization
strategies of our competitors;
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The
success of our launch and marketing efforts;
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Adverse
publicity about us, our products, our competitors and their products or the industry
as a whole or favorable publicity about competitors;
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The
advent of new and innovative alternative products; and
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Any
unforeseen issues or adverse developments in connection with a product and any resulting
litigation or regulatory scrutiny and harm to our reputation or the reputation or acceptance
of the product in the market.
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In addition, there
are many risks associated with developing, commercializing and marketing new products that are beyond our control. For example,
without limitation, our collaboration partner(s) may decide to make substantial changes to a product’s formulation or design,
may experience financial difficulties or may have limited financial resources. Any of the foregoing may delay the development,
commercialization and/or marketing of new products. In addition, if a codeveloper on a new product terminates our collaboration
agreement or does not perform under the agreement, we may experience delays and additional costs in developing and marketing that
product, with no assurances of us having the resources that may be required to overcome such delays or additional costs that were
beyond our control.
We conduct research and development to enable us to manufacture
and market pharmaceutical products in accordance with specific government regulations. Our drug development efforts relating to
SequestOx and certain generics are focused on technically difficult-to-formulate products and/or products that require advanced
manufacturing technology. Typically, expenses related to research, development, and regulatory approval of compounds for SequestOx,
which is a branded pharmaceutical product are significantly greater than those expenses associated with generic products. Expanded
research and development efforts are required, resulting in increased research expenses. Because of the inherent risk associated
with research and development efforts in the healthcare industry, particularly with respect to new drugs, our research and development
expenditures may not result in the successful regulatory approval and introduction of new pharmaceutical products and failure in
the development of any new product can occur at any point in the process, including late in the process after substantial investment.
Also, after we submit a regulatory application, the relevant governmental health authority may require that we conduct additional
studies, including, for example, studies to assess the product’s interaction with alcohol. As a result, we may be unable
to reasonably predict the total research and development costs to develop a particular product and there is a significant risk
that the funds we invest in research and development will not generate financial returns. In addition, our operating results and
financial condition may fluctuate as the amount we spend to research and develop, commercialize, acquire or license new products,
technologies and businesses changes. Much of the preceding occurred with the development of SequestOx, which has not yet received
marketing approval from the FDA, with material adverse effects on our business, results of operations, financial condition, cash
flows and ability to operate resulting in the past, as well as the risk remaining for the future.
We expend a significant amount of resources
on product development efforts that may not result in successful product commercializations.
We conduct product
development to enable us to gain approval, manufacture and market pharmaceuticals in accordance with applicable laws and regulations.
We have also partnered with third parties, such as SunGen, in the past, to develop products. There can be no assurances of the
recovery of any or all investments made conducting such product development activities, even if the product or products are successful
in achieving regulatory approval and commercialization. An event of significant resources, financial and otherwise, being consumed
by product development activities that fail to achieve approval/commercialization or fail to achieve sufficient return of such
investments and resources consumed, that any investment made in such product development activities could result in a material
adverse effect on our business, results of operations, financial condition, cash flow, ability to operate and our stock price.
Before we can obtain regulatory approval,
we need to successfully complete clinical trials, outcomes of which are uncertain.
In order to obtain
FDA approval to market a new drug product, we must demonstrate proof of safety and effectiveness in humans. To meet these requirements,
we must conduct extensive preclinical testing and “adequate and well-controlled” clinical trials. Conducting
clinical trials is a lengthy, time-consuming, and expensive process. Completion of necessary clinical trials may take several
years or more. Delays associated with products for which we are directly conducting preclinical or clinical trials may cause us
to incur additional operating expenses. The commencement and rate of completion of clinical trials may be delayed by many factors,
including, without limitation, for example:
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ineffectiveness of our product candidate or perceptions by physicians
that the product candidate is not safe or effective for a particular indication;
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inability to manufacture sufficient quantities of the product
candidate for use in clinical trials;
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delay or failure in obtaining approval of our clinical trial
protocols from the FDA or institutional review boards;
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slower than expected rate of patient recruitment and enrollment;
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inability to adequately follow and monitor patients after treatment;
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difficulty in managing multiple clinical sites;
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unforeseen safety issues;
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government or regulatory delays; and,
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clinical trial costs that are greater than we currently anticipate.
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Even if we achieve
positive interim results in clinical trials, these results do not necessarily predict final results, and positive results in early
trials may not be indicative of success in later trials. A number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in earlier trials. Negative or inconclusive results
or adverse medical events during a clinical trial could cause us to repeat or terminate a clinical trial or require us to conduct
additional trials. We do not know whether our existing or any future clinical trials will demonstrate safety and efficacy sufficiently
to result in marketable products. Our clinical trials may be suspended at any time for a variety of reasons, including if the
FDA or we believe the patients participating in our trials are exposed to unacceptable health risks or if the FDA finds deficiencies
in the conduct of these trials.
Failures or perceived
failures in our clinical trials will directly delay our product development and regulatory approval process, damage our business
prospects, make it difficult for us to establish collaboration and partnership relationships, and negatively affect our reputation
and competitive position in the pharmaceutical community.
Because of these risks,
our research and development efforts may not result in any commercially viable products. Any delay in, or termination of, our
preclinical or clinical trials will delay the filing of our drug applications with the FDA and, ultimately, our ability to commercialize
our product candidates and generate product revenues. If a significant portion of these development efforts are not successfully
completed, required regulatory approvals are not obtained, or any approved products are not commercially successful, our business,
financial condition, and results of operations may be materially harmed.
Our pipeline of products under development
include products that would be filed as branded pharmaceuticals and if generic manufacturers use litigation and regulatory means
to obtain approval for generic versions of one or more of such branded drugs, our sales may be adversely affected.
Under the Hatch-Waxman
Act, the FDA can approve an ANDA for a generic bioequivalent version of a previously approved drug, without undertaking the full
clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually
needs only to submit data demonstrating that its generic product is bioequivalent to the branded product.
Our product development
pipeline includes a range of abuse resistant opioid products, with full clinical testing activity being currently planned, in
progress or successfully completed. In recent years, various generic manufacturers have filed ANDAs seeking FDA approval for generic
versions of opioids and opioids with abuse resistant characteristics. In connection with our filings, these manufacturers may
challenge the validity and/or enforceability of one or more of the underlying patents protecting our products. While it is the
Company’s intention to vigorously defend and pursue all available legal and regulatory avenues in defense of the intellectual
property rights protecting our products, it must also be stressed that litigation is inherently uncertain, and we cannot predict
the timing or outcome of our efforts. There can also be no assurance that our efforts in defense of the intellectual property
rights protecting our products will be successful.
If we are not successful
in defending our intellectual property rights, or opt to settle, or if a product’s marketing exclusivity rights expire or
become otherwise unenforceable, our competitors could ultimately launch generic versions of one or more of our branded products,
after such products have been approved by the FDA, which could significantly decrease our revenues and could have a material adverse
effect on our business, financial conditions, results of operations and cash flow. Furthermore, such a material adverse effect
may result in a material adverse effect on our share price.
The time necessary to develop generic
drugs may adversely affect whether, and the extent to which, we receive a return on our capital.
The development process
for branded and generic products, including, without limitation, drug formulation, testing, and FDA review and approval, often
takes three or more years. This process requires that we expend considerable capital to pursue activities that do not yield an
immediate or near-term return. Also, because of the significant time necessary to develop a product, the actual market for a product
at the time it is available for sale may be significantly less than the originally projected market for the product. If this were
to occur, our potential return on our investment in developing the product, if approved for marketing by the FDA, would be adversely
affected and we may never receive a return on our investment in the product. It is also possible for the manufacturer of the brand-name
product for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription
market to the OTC market. If this were to occur, we would be prohibited from marketing our product other than as an OTC drug,
in which case revenues could be substantially less than we anticipated.
The risks and uncertainties inherent
in conducting clinical trials could delay or prevent the development and commercialization of our own branded products, which
could have a material adverse effect on our business, results of operations and financial condition.
With respect to our
branded products which do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical
trials that these products are safe and effective for use. We have only limited experience in conducting and supervising clinical
trials. The process of completing clinical trials and preparing an NDA may take several years and requires substantial resources.
Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA grants approval, we cannot
predict the timing of any approval. There are substantial filing fees for NDAs, often in excess of $1 million in addition to the
cost of product development and clinical trials, that are not refundable if FDA approval is not obtained.
There are a number
of risks and uncertainties associated with clinical trials. The results of clinical trials may not be indicative of results that
would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced stages of disease
and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may
not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition,
side effects experienced by the patients may cause delay of approval or limit the profile of an approved product. Moreover, our
clinical trials may not demonstrate sufficient safety and efficacy to obtain approval from the FDA or foreign regulatory authorities.
The FDA or foreign regulatory authorities may not agree with our assessment of the clinical data or they may interpret it differently.
Such regulatory authorities may require additional or expanded clinical trials. Even if the FDA or foreign regulatory authorities
approve certain products developed by us, there is no assurance that such regulatory authorities will not subject marketing of
such products to certain limits on indicated use.
Failure can occur
at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive of
results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired
safety or efficacy despite having progressed successfully through earlier clinical testing.
Completion of clinical
trials for our product candidates may be delayed or halted for the reasons noted above in addition to many other reasons, including,
without limitation:
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Delays in patient enrolment, and variability in the number and
types of patients available for clinical trials;
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Regulators or institutional review boards may not allow us to
commence or continue a clinical trial;
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Our inability, or the inability of our partners, if any, to
manufacture or obtain from third parties those materials required to complete clinical trials;
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Delays or failure in reaching agreement on acceptable clinical
trial contracts or clinical trial protocols with prospective clinical trial sites;
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Risks associated with trial design, which may result in a failure
of the trial to show statistically significant results even if the product candidate is effective;
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Difficulty in maintaining contact with patients after treatment
commences, resulting in incomplete data
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Poor effectiveness of product candidates during clinical trials;
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Safety issues, including adverse events associated with product
candidates;
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Failure of patients to complete clinical trials due to adverse
side effects, dissatisfaction with the product candidate, or other reasons;
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Governmental or regulatory delays or changes in regulatory requirements,
policy, and guidelines; and,
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Varying interpretation of data by the FDA or other relevant
regulatory authorities.
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In addition, our product
candidates could be subject to competition for clinical study sites and patients from other therapies under development which may
delay the enrolment in or initiation of our clinical trials.
The FDA or other relevant
regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense
and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates
would prevent or delay the commercialization of our product candidates. We cannot assure that our expenses related to clinical
trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or failure in the
development and commercialization of our own branded products could have a material adverse effect on our business, results of
operations and financial condition.
We rely on third parties to conduct
clinical trials and testing for our product candidates, and if they do not properly and successfully perform their legal and regulatory
obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product
candidates.
We design the clinical
trials for our product candidates but rely on contract research organizations and other third parties to assist us in managing,
monitoring and otherwise carrying out these trials, including, without limitation, with respect to site selection, contract negotiation,
analytical testing, and data management. We do not control these third parties and, as a result, delays may occur as a result
of the priorities and operations of these third parties differing from those which we may feel would be most optimal to the completion
of such activities in the most efficient manner possible.
Although we rely on
third parties to conduct our clinical trials and related activities, we are responsible for confirming that each of our clinical
trials is conducted in accordance with our general investigational plan and protocol. Moreover, the FDA and other relevant regulatory
agencies require us to comply with regulations and standards, commonly referred to as good clinical practices and good laboratory
practices, for conducting, recording, and reporting the results of clinical trials to ensure that the data and results are credible
and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these
responsibilities and requirements. The FDA enforces good clinical practices and good laboratory practices through periodic inspections
of trial sponsors, principal investigators, and trial sites. If we, our contract research organizations, or our study sites fail
to comply with applicable good clinical practices and good laboratory practices, the clinical data generated in our clinical trials
may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications.
We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices
and good laboratory practices. In addition, our clinical trials must be conducted with product manufactured under the FDA’s
current Good Manufacturing Practices, or cGMP, regulations. Our failure or the failure of our contract manufacturers if any are
involved in the process, to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory
approval process.
If third parties do
not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is
compromised due to failure to adhere to our clinical protocols or regulatory requirements, or if they otherwise fail to comply
with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical
trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended,
delayed, suspended, or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product
candidates, which could have a material adverse effect on our business, results of operations and financial condition.
Decreases in the degree to which individuals
are covered by healthcare insurance could result in the decreased use of our products.
Employers may seek to reduce costs by reducing or eliminating
employer group healthcare plans or by transferring a greater portion of their healthcare costs to their employees. Job losses,
or other economic hardships, especially, but not limited to those hardships resulting from the effects of the COVID-19 global pandemic,
may also result in reduced levels of coverage for some individuals, potentially resulting in lower healthcare coverage for themselves
or their families. Furthermore, increased instability in the insurance marketplace or an increase in uninsured Americans or others
living and working in the USA may result from the Tax Cuts and Jobs Act of 2017 elimination of the Patient Protection and Affordable
Care Act (PPACA)’s requirement that individuals maintain health insurance or incur a financial penalty and other steps taken
by various governmental and other organizations to limit or end subsidies to such individuals at comparatively lower income levels.
These economic conditions may affect an individual’s ability to afford healthcare as a result of increased premiums, co-pay
or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations, lost healthcare coverage or for
other reasons. It is possible that such conditions could lead to changes in patient behavior and spending patterns that could negatively
affect prescription and usage of certain or all of our products, including, without limitation, delaying of treatment, rationing
of prescription medications, non-filling of prescriptions, reduction in the frequency of visits to healthcare facilities, utilizing
alternative therapies or foregoing healthcare insurance coverage altogether. Such changes may result in the reduced demand for
any or all of our products, which could have a material adverse effect on our business, results of operations, financial condition,
cash flows and ability to operate as a going concern.
In December 2018,
the U.S. District Court for the Northern District of Texas held in Texas v. Azar that, because the provisions of the PPACA requiring
certain individuals to either obtain health insurance or pay a shared responsibility payment (known as the individual mandate)
are no longer permissible under the U.S. Congress’ taxing power, the entire PPACA is no longer constitutional. The decision
was appealed to the U.S. Court of Appeals for the Fifth Circuit. In December 2019, the Fifth Circuit issued an opinion holding
that, while the individual mandate was no longer constitutional, the case must be remanded to the district court to further evaluate
whether the mandate can be severed from the PPACA or the entire PPACA must be stricken down. In January 2020, petitions for certiorari
were filed requesting that the U.S. Supreme Court review the Fifth Circuit’s decision and ultimately decide the constitutionality
of the PPACA. In March 2020, the U.S. Supreme Court granted certiorari in the consolidated cases of Texas v. California and
California v. Texas, both of which address the Fifth Circuit’s decision to strike down the individual mandate, while
sending back to the district court the question of the overall law’s constitutionality. Changes in law resulting from this
ongoing lawsuit or other court challenges to the PPACA could have a material
adverse effect on our business, results of operations, financial condition, cash flows and ability to operate as a going concern.
We may decide to sell or withdraw approved
ANDAs, which could result in a material adverse effect on our ability to operate in the future.
We may, from time to time, sell and/or withdraw approved ANDAs
if we determine that the costs of maintaining such ANDAs is excessive when compared to their actual current value and their perceived
value and place in our strategic plans. For example, and without limitation, during the twelve months ended March 31, 2020, we
received new product approvals that would have resulted in us owning a number of ANDAs that would have required us to self-identify
as a large size ANDA holder, on the measurement date, as per the FDA’s Generic Drug User Fee Amendment (“GDUFA”)
program fee structure, as opposed to the medium size ANDA classification in effect prior to these new ANDA approvals. Based on
the GDUFA program fees in effect for the period October 1, 2019 through September 30, 2020, the annual fee for large sized ANDA
holders was approximately $1.0 million greater than the fee for medium sized ANDA holders. After conducting a study of ANDAs held,
with the GDUFA program fee levels being one of several relevant factors considered, we identified and sold ANDAs relating to Methadone
Tablets, Second Phendimetrazine Product, Hydromorphone Tablets, Oxycodone and Acetaminophen Tablets and Hydrocodone and Acetaminophen
Tablets.
Although our expectations
are to engage only in the sale or withdrawal of ANDAs if they advance or otherwise support our overall strategy, any such ANDA
sale by definition reduces the size and scope of our business, with a direct correlation to opportunities with respect to certain
markets, products or therapeutic categories, resulting in the potential for any such ANDA sale or withdrawal having a material
adverse effect on our business, results of operations, financial condition, cash flow and ability to operate in the future.
The pharmaceutical industry is heavily
regulated, which creates uncertainty about our ability to bring new products to market and imposes substantial compliance costs
on our business in relation to product development as well as commercial operations.
Governmental authorities such as the FDA impose substantial
requirements on the development, manufacture, holding, labelling, marketing, advertising, promotion, distribution and sale of therapeutic
pharmaceutical products through lengthy and detailed laboratory and clinical testing and other costly and time-consuming procedures.
In addition, before obtaining regulatory approvals for certain generic products, we must conduct limited bioequivalence studies
and other research to show comparability to the branded products. A failure to obtain satisfactory results in required pre-marketing
trials may prevent us from obtaining required regulatory approvals. The FDA may also require companies to conduct post-approval
studies and post-approval surveillance regarding their drug products and to report adverse events.
Before obtaining regulatory approvals for the sale of any of
our new product candidates, we must demonstrate through preclinical studies and clinical trials that the product is safe and effective
for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of a product. Likewise,
we may not be able to demonstrate through clinical trials that a product candidate’s therapeutic benefits outweigh its risks.
Even promising results from preclinical and early clinical studies do not always accurately predict results in later, large scale
trials. A failure to demonstrate safety and efficacy could or would result in our failure to obtain regulatory approvals. Clinical
trials can be delayed for reasons outside of our control, which can lead to increased development costs and delays in regulatory
approval. For example, due to competition to enroll patients in clinical trials, there have been instances of delays in clinical
development of our products in the past, as a result of patients not enrolling in clinical trials at the rate expected, or patients
dropping out of trials after enrolling, at rates that were higher than expected. In addition, we rely on collaboration partners
and third-party subject matter experts that may recommend changes in trial protocol and design enhancements that are put into effect,
or encounter clinical trial compliance-related issues, which may also delay clinical trials. Product supplies may be delayed or
be insufficient to treat the patients participating in the clinical trials, or manufacturers or suppliers may not meet the requirements
of the FDA or foreign regulatory authorities, such as those relating to Current Good Manufacturing Practices. We also may experience
delays in obtaining, or we may not obtain, required initial and continuing approval of our clinical trials from institutional review
boards. We cannot confirm to you that we will not experience delays or undesired results in these or any other of our clinical
trials.
We cannot confirm
to you that the FDA will approve, clear for marketing or certify any products developed by us or that such approval will not subject
the marketing of our products to certain limits on indicated use. The FDA may not agree with our assessment of the clinical data
or they may interpret it differently. Such regulatory authorities may require additional or expanded clinical trials. Any limitation
on use imposed by the FDA or delay in or failure to obtain FDA approvals or clearances of products developed by us would adversely
affect the marketing of these products and our ability to generate product revenue, which would adversely affect our financial
condition and results of operations.
In addition, with
respect specifically to pharmaceutical products, the submission of a New Drug Application (NDA), such as SequestOx™, or
ANDA to the FDA with supporting clinical safety and efficacy data, for example, does not guarantee that the FDA will grant approval
to market the product. Meeting the FDA’s regulatory requirements to obtain approval to market a drug product, which varies
substantially based on the type, complexity and novelty of the pharmaceutical product, typically takes years and is subject to
uncertainty.
Additional delays
may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. Although
the FDA is not required to follow the recommendations of its Advisory Committees, it usually does. A negative Advisory Committee
meeting could signal a lower likelihood of approval, although the FDA may still end up approving our application. Regardless of
an Advisory Committee meeting outcome or the FDA’s final approval decision, public presentation of our data may shed positive
or negative light on our application.
Some drugs are available
in the United States that are not the subject of an FDA-approved NDA. In 2011, the FDA’s Center for Drug Evaluation and
Research (“CDER”) Office of Compliance modified its enforcement policy with regard to the marketing of such
“unapproved” marketed drugs. Under CDER’s revised guidance, the FDA encourages manufacturers to obtain NDA approvals
for such drugs by requiring unapproved versions to be removed from the market after an approved version has been introduced, subject
to a grace period at the FDA’s discretion. This grace period is intended to allow an orderly transition of supply to the
market and to mitigate any potential related drug shortage. Depending on the length of the grace period and the time it takes
for subsequent applications to be approved, this may result in a period of de facto market exclusivity to the first manufacturer
that has obtained an approved NDA for the previously unapproved marketed drug. We may seek FDA approval for certain unapproved
marketed drug products through the 505(b)(2) regulatory pathway. Even if we receive approval for an NDA under Section 505(b)(2),
the FDA may not take timely enforcement action against companies marketing unapproved versions of the drug; therefore, we cannot
be sure that that we will receive the benefit of any de facto exclusive marketing period or that we will fully recoup the expenses
incurred to obtain an approval. In addition, certain competitors and others have objected to the FDA’s interpretation of
Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, this could delay or even
prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
Moreover, even if
our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses
for which the products may be marketed or to other conditions of approval or may contain requirements for costly post-marketing
testing and surveillance to monitor the safety or efficacy of the products.
The ANDA approval
process for a new product varies in time, is difficult to estimate and can vary significantly, from as little as 10 months from
the date of application, to several years or more. Furthermore, ANDA approvals, if granted, may not include all indications for
which the Company may seek to market each product.
Further, once a product
is approved or cleared for marketing, failure to comply with applicable regulatory requirements can result in, among other things,
suspensions or withdrawals of approvals or clearances, seizures or recalls of products, injunctions against the manufacture, holding,
distribution, marketing and sale of a product, and civil and criminal sanctions. Furthermore, changes in existing regulations
or the adoption of new regulations could prevent us from obtaining, or affect the timing of, future regulatory approvals or clearances.
Meeting regulatory requirements and evolving government standards may delay marketing of our new products for a considerable period
of time, impose costly procedures upon our activities and result in a competitive advantage to larger companies that compete against
us.
Based on scientific
developments, post-market experience, or other legislative or regulatory changes, the current FDA standards of review for approving
new pharmaceutical products, or new indications or uses for approved or cleared products, are sometimes more stringent than those
that were applied in the past.
Some new or evolving
FDA review standards or conditions for approval or clearance were not applied to many established products currently on the market,
including certain opioid products. As a result, the FDA does not have as extensive safety databases on these products as on some
products developed more recently. Accordingly, we believe the FDA has expressed an intention to develop such databases for certain
of these products, including many opioids. In particular, the FDA has expressed interest in specific chemical structures that
may be present as impurities in a number of opioid narcotic active pharmaceutical ingredients, such as oxycodone, which based
on certain structural characteristics and laboratory tests may indicate the potential for having mutagenic effects. FDA has required,
and may continue to require, more stringent controls of the levels of these impurities in drug products for approval.
Also, the FDA may require labelling revisions, formulation,
or manufacturing changes and/or product modifications for new or existing products containing such impurities. The FDA’s
more stringent requirements, together with any additional testing or remedial measures that may be necessary, could result in increased
costs for, or delays in, obtaining approval for certain of our products in development. Although we do not believe that the FDA
would seek to remove a currently marketed product from the market unless such mutagenic effects are believed to indicate a significant
risk to patient health, we cannot make any such assurance.
In May of 2016, an
FDA advisory panel recommended mandatory training of all physicians who prescribe opioids on the risks of prescription opioids.
In 2016, the CDC also issued a guideline for prescribing opioids for chronic pain that provides recommendations for primary care
clinicians who are prescribing opioids for chronic pain outside of active cancer treatment, palliative care, and end-of-life care.
In addition, state health departments and boards of pharmacy have authority to regulate distribution and may modify their regulations
with respect to prescription narcotics in an attempt to curb abuse. In either case, any such new regulations or requirements may
be difficult and expensive for us to comply with, may delay our introduction of new products, may adversely affect our total revenues,
and may have a material adverse effect on our business, results of operations, financial condition and cash flows.
The FDA has the authority to require companies to undertake
additional post-approval studies to assess known or signaled safety risks and to make any labelling changes to address those risks.
The FDA also can require companies to formulate approved Risk Evaluation and Mitigation Strategies (REMS) to confirm a drug’s
benefits outweigh its risks.
The FDA’s exercise of its authority under the FFDCA could
result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply
with additional post-approval regulatory requirements and potential restrictions on sales of approved products. Foreign regulatory
agencies often have similar authority and may impose comparable requirements and costs. Post-marketing studies and other emerging
data about marketed products, such as adverse event reports, may also adversely affect sales of our products. Furthermore, the
discovery of significant safety or efficacy concerns or problems with a product in the same therapeutic class as one of our products
that implicate or appear to implicate the entire class of products could have an adverse effect on sales of our product or, in
some cases, result in product withdrawals. The FDA has continuing authority over the approval of an NDA or ANDA and may withdraw
approval if, among other reasons, post-marketing clinical or other experience, tests, or data show that a drug is unsafe for use
under the conditions upon which it was approved, or if FDA determines that there is a lack of substantial evidence of the drug’s
efficacy under the conditions described in its labelling. Furthermore, new data and information, including information about product
misuse or abuse at the user level, may lead government agencies, professional societies, practice management groups or patient
or trade organizations to recommend or publish guidance or guidelines related to the use of our products, which may lead to reduced
sales of our products.
The FDA and the DEA
have important and complementary responsibilities with respect to our business. The FDA administers an application and post-approval
monitoring process to confirm that products that are available in the market are safe, effective, and consistently of uniform,
high quality. The DEA administers registration, drug allotment and accountability systems to satisfy against loss and diversion
of controlled substances. Both agencies have trained investigators that routinely, or for cause, conduct inspections, and both
have authority to seek to enforce their statutory authority and regulations through administrative remedies as well as civil and
criminal enforcement actions. The FDA regulates and monitors the quality of drug clinical trials to provide human subject protection
and to support marketing applications. The FDA may place a hold on a clinical trial and may cause a suspension or withdrawal of
product approvals if regulatory standards are not maintained. The FDA also regulates the facilities, processes, and procedures
used to manufacture and market pharmaceutical products in the U.S. Manufacturing facilities must be registered with the FDA and
all products made in such facilities must be manufactured in accordance with the latest cGMP regulations, which are enforced by
the FDA. Compliance with clinical trial requirements and cGMP regulations requires the dedication of substantial resources and
requires significant expenditures. In the event an approved manufacturing facility for a particular drug is required by the FDA
to curtail or cease operations, or otherwise becomes inoperable, or a third-party contract manufacturing facility faces manufacturing
problems, obtaining the required FDA authorization to manufacture at the same or a different manufacturing site could result in
production delays, which could adversely affect our business, results of operations, financial condition, and cash flow and ability
to operate in the future.
The FDA is authorized
to perform inspections of U.S. and foreign facilities under the FFDCA. At the end of such an inspection, FDA could issue a Form
483 Notice of Inspectional Observations, which could cause us to modify certain activities identified during the inspection. Following
such inspections, the FDA may issue an untitled letter as an initial correspondence that cites violations that do not meet the
threshold of regulatory significance of a Warning Letter. FDA guidelines also provide for the issuance of Warning Letters for
violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be
expected to result in an enforcement action. FDA also may issue Warning Letters and untitled letters in connection with events
or circumstances unrelated to an FDA inspection.
Similar to other pharmaceutical
companies, during Fiscal 2017, our facilities were subject to routine and new-product related inspections by the FDA. These inspections
resulted in FDA Form 483 observations and a warning letter regarding post marketing adverse drug experience reporting. We have
responded to all inspection observations within the required time frame and have implemented, or are continuing to implement,
the corrective action plans as agreed with the relevant regulatory agencies. Please also see the risk factor titled “We
received a Warning Letter from the U.S. Food and Drug Administration regarding Post marketing Adverse Drug Experience reporting.
The Warning Letter does not restrict the production or shipment of any of the Company’s products, or the sale or marketing
of the Company’s products, however, unless and until the Company is able to correct the outstanding issues identified, to
the FDA’s satisfaction, the FDA may withhold approval of pending drug applications or take other actions that would have
a material adverse impact on the Company”.
Many of our products
contain controlled substances. The stringent DEA regulations on our use of controlled substances include restrictions on their
use in research, manufacture, distribution, and storage. A breach of these regulations could result in imposition of civil penalties,
refusal to renew or action to revoke necessary registrations, or other restrictions on operations involving controlled substances.
In addition, failure to comply with applicable legal requirements subjects the manufacturing facilities of our subsidiaries and
manufacturing partners to possible legal or regulatory action, including shutdown. Any such shutdown may adversely affect their
ability to supply us with product and thus, our ability to market affected products. This could have a negative impact on our
business, results of operations, financial condition, cash flows and competitive position. See also the risk described under the
caption “The DEA limits the availability of the active ingredients used in many of our current products and products
in development, as well as the production of these products, and, as a result, our procurement and production quotas may not be
sufficient to meet commercial demand or complete clinical trials.” In addition, we are subject to the Federal Drug Supply
Chain Security Act (DSCSA). The U.S. government has enacted DSCSA which requires development of an electronic pedigree to track
and trace each prescription drug at the saleable unit level through the distribution system, which will be effective incrementally
over a 10-year period. Compliance with DSCSA and future U.S. federal or state electronic pedigree requirements may increase our
operational expenses and impose significant administrative burdens.
We cannot determine what effect changes in regulations or legal
interpretations or requirements by the FDA or the courts, when and if promulgated or issued, may have on our business in the future.
Changes could, among other things, require different labelling, monitoring of patients, interaction with physicians, education
programs for patients or physicians, curtailment of necessary supplies, or limitations on product distribution. These changes,
or others required by the FDA or DEA could have an adverse effect on the sales of these products. The evolving and complex nature
of regulatory science and regulatory requirements, the broad authority and discretion of the FDA and the generally high level of
regulatory oversight results in a continuing possibility that, from time to time, we will be adversely affected by regulatory actions
despite our ongoing efforts and commitment to achieve and maintain full compliance with all regulatory requirements.
Furthermore, once a
product receives marketing approval, the manufacturing, distribution, processing, formulation, packaging, labelling, promotion
and sale of our products are subject to extensive regulation by federal agencies, including, without limitation, the FDA, DEA,
FTC, Consumer Product Safety Commission, and Environmental Protection Agency, among others. We are also subject to state and local
laws, regulations, and agencies in New Jersey and elsewhere. Such regulations are also subject to change by the relevant federal,
state and local agencies. For instance, beginning from January 1, 2015, manufacturers, wholesale distributors, and repackages of
certain prescription drugs are required to provide and capture certain product tracing information under the Drug Quality and Security
Act (“DQSA”). Title II of the DQSA, referred to as the Drug Supply Chain Security Act, requires companies in
certain prescription drugs’ chain of distribution to build electronic, interoperable systems to identify and trace the products
as they are distributed in the United States. Compliance with the DQSA or any future federal or state electronic pedigree requirements
may increase the Company's operational expenses and impose significant administrative burdens.
Regulatory agencies
such as the FDA regularly inspect our manufacturing facilities and the facilities of our third-party suppliers. The failure of
the Northvale Facility, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may
lead to breach of representations made to our customers or to regulatory or government action against us related to products made
in that facility. We have in the past received and successfully resolved Form 483 observations from the FDA regarding certain
operations within our manufacturing network. Although we remain committed to continuing to improve our quality control and manufacturing
practices, we cannot be assured that the FDA will continue to be satisfied with our quality control and manufacturing systems
and standards. If we receive any future FDA observations, we may be subject to regulatory action including, among others, monetary
sanctions or penalties, product recalls or seizure, injunctions, total or partial suspension of production and/or distribution,
and suspension or withdrawal of regulatory approvals. Further, other federal agencies, our customers and partners in our alliance,
development, collaboration, and other partnership agreements with respect to our products and services may take any such Form
483 observations into account when considering the award of contracts or the continuation or extension of such partnership agreements.
If we receive any future Form 483 observations or warning letters from the FDA, our business, consolidated results of operations
and consolidated financial condition could be materially and adversely affected.
With respect to environmental,
safety and health laws and regulations, we cannot accurately predict the outcome or timing of future expenditures that we may
be required to make in order to comply with such laws as they apply to our operations and facilities. We are also subject to potential
liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and
disposal activities. We are subject periodically to environmental compliance reviews by environmental, safety, and health regulatory
agencies. Environmental laws are subject to change and we may become subject to stricter environmental standards in the future
and face larger capital expenditures in order to comply with environmental laws.
Compliance with federal
and state and local law regulations, including compliance with any newly enacted regulations, requires substantial expenditures
of time, money, and effort to ensure full technical compliance. Failure to comply with the FDA, DEA, EPA and other governmental
regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, exposure
to product liability claims, total or partial suspension of production or distribution, suspension of the FDA’s review of
NDAs or ANDAs, enforcement actions, injunctions and civil or criminal prosecution, any of which could have a material and adverse
effect on our business, results of operations and financial condition.
If pharmaceutical companies are successful
in limiting the use of generics through their legislative, regulatory and other efforts, our sales of generic products may suffer.
Many pharmaceutical
companies increasingly have used state and federal legislative and regulatory means to delay generic competition. These efforts
have included:
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Pursuing
new patents for existing products which may be granted just before the expiration of
earlier patents, which could extend patent protection for additional years;
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Using
the Citizen Petition process (for example, under 21 C.F.R. s. 10.30) to request amendments
to FDA standards;
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Attempting
to use the legislative and regulatory process to have drugs reclassified or rescheduled
or to set definitions of abuse-deterrent formulations to protect patents and profits;
and
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Engaging
in state-by-state initiatives to enact legislation that restricts the substitution of
some generic drugs.
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If pharmaceutical
companies or other third parties are successful in limiting the use of generic products through these or other means, our sales
of generic products and our growth prospects may decline. A material decline in generic product sales will have a material adverse
effect on our results of operations, financial condition, cash flows and our ability to operate.
The availability of third party reimbursement
for our products is uncertain, and thus we may find it difficult to maintain current price levels. Additionally, the market may
not accept those products for which third party reimbursement is not adequately provided.
Our ability to commercialize
and generate revenues and profit splits relating to the sale of our products depends, in part, on the extent to which reimbursement
for the costs of these products is available from government healthcare programs, such as Medicaid and Medicare, private health
insurers and others. We cannot be certain that, over time, third party reimbursements for our products will be adequate for us
to maintain price levels sufficient for realization of an appropriate return on our investment. Government payers, private insurers
and other third party payers are increasingly attempting to contain healthcare costs by: (i) limiting both coverage and the level
of reimbursement (including adjusting co-pays) for drugs, (ii) refusing, in some cases, to provide any coverage for off-label
uses for drugs and (iii) requiring or encouraging, through more favorable reimbursement levels or otherwise, the substitution
of generic alternatives to branded drugs. The Trump Administration also has been targeting drug prices in ways that could affect
reimbursement for our products. For example, beginning in January 2019, Medicare Advantage Plans will be permitted to apply “step
therapy” to products covered under Part B, which could impact our ability to negotiate for favorable product access in this
sector. Additionally, in October 2018, President Trump announced a new initiative to contain drug costs by establishing an “international
pricing index” that would be used as a benchmark in deciding how much to pay for Medicare Part B drugs. The Centers for
Medicare and Medicaid Services (CMS) issued an Advance Notice of Proposed Rulemaking for the Medicare Program that would reduce
Part B drug spending and reimbursement in part based on the prices that manufacturers charge to customers in foreign countries
(also referred to as reference pricing). This proposal targets physician-administered drugs, and it is therefore possible that
any final rule could adversely affect reimbursement for certain products that we sell, and we cannot anticipate the adverse impact
of this or similar developments on our business. Additionally, the new Congress is considering multiple proposals impacting healthcare.
There can be no assurance as to which proposals, if any, will be adopted, the final terms of any such proposals and the ultimate
impact that such proposals would have on our business, but there can be no assurances given that any such impact will not be materially
detrimental to our business, results of operations, financial condition, cash flows and ability to operate in the future.
If we are unable to satisfy FDA regulatory
requirements, we may not be able to commercialize our product candidates.
We need FDA approval
prior to marketing our product candidates in the United States of America. If we fail to obtain FDA approval to market our product
candidates, we will be unable to sell our product candidates in the United States of America and we will not generate any revenue
from the sale of such products.
This regulatory review
and approval process, which includes evaluation of preclinical studies and clinical trials of our product candidates, is lengthy,
expensive, and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled
clinical trials that our product candidates are both safe and effective for each indication where approval is sought. Satisfaction
of these requirements typically takes several years, and the time needed to satisfy them may vary substantially, based on the
type, complexity, and novelty of the pharmaceutical product. We cannot predict if or when we might submit for regulatory approval
any of our product candidates currently under development. Any approvals we may obtain may not cover all of the clinical indications
for which we are seeking approval. Also, an approval might contain significant limitations in the form of narrow indications,
warnings, precautions, or contra-indications with respect to conditions of use.
The FDA has substantial
discretion in the approval process and may either refuse to accept an application for substantive review or may form the opinion
after review of an application that the application is insufficient to allow approval of a product candidate. If the FDA does
not accept our application for review or approve our application, it may require that we conduct additional clinical, preclinical
or manufacturing validation studies and submit the data before it will reconsider our application. Depending on the extent of
these or any other studies that might be required, approval of any applications that we submit may be delayed by several years,
or we may be required to expend more resources than we have available. It is also possible that any such additional studies, if
performed and completed, may not be considered sufficient by the FDA to make our applications approvable. If any of these outcomes
occur, we may be forced to abandon our applications for approval.
We will also be subject
to a wide variety of foreign regulations governing the development, manufacture and marketing of our products. Whether or not
an FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still
be obtained prior to manufacturing or marketing the product in those countries. The approval process varies from country to country
and the time needed to secure approval may be longer or shorter than that required for FDA approval. We cannot assure you that
clinical trials conducted in one country will be accepted by other countries or that approval of our product in one country will
result in approval in any other country.
Litigation, product liability claims,
other significant legal proceedings, government investigations and product recalls are common in the pharmaceutical industry and
can be protracted and expensive and could delay and/or prevent entry of our products into the market, which, in turn, could have
a material adverse effect on our business.
As a business that
operates in the pharmaceutical industry, we are inherently exposed to significant potential risks from lawsuits, product liability
claims, patent and proprietary rights claims, other significant proceedings, government investigations or product recalls, including,
without limitation, such matters associated with the testing, manufacturing, marketing and sale of our products. While no such
judgements have been made against us to date, some plaintiffs have received substantial damage awards or settlements against other
healthcare companies based upon various legal theories, including, without limitation, claims for injuries allegedly caused by
use of their products. Our business continues to be inherently exposed to the risk of being subject to product liability cases,
as well as other significant legal proceedings and government investigations.
For example, we have been a manufacturer of prescription opioid
medications in the past, and while we have not been subject to lawsuits, other manufacturers of such products, as well as distributors
and other sellers of such medications, have been subjects of subject of lawsuits and have received subpoenas and other requests
for information from various federal, state and local government agencies regarding the sale, marketing and/or distribution of
prescription opioid medications. Numerous claims against opioid manufacturers, have been and may continue to be filed by or on
behalf of states, counties, cities, Native American tribes, other government-related persons or entities, hospitals, health systems,
unions, health and welfare funds, other third-party payers and/or individuals. In these cases, plaintiffs seek various remedies,
including without limitation declaratory and/or injunctive relief; compensatory, punitive and/or treble damages; restitution, disgorgement,
civil penalties, abatement, attorneys’ fees, costs and/or other relief. Settlement demands may seek significant monetary
and other remedies, or otherwise be on terms that would result in material adverse effects on our business and ability to operate
as a going concern. The precedent of awards against and settlements by our competitors could also incentivize parties to bring
additional claims against us. In addition to the risks of direct expenditures for defense costs, settlements and/or judgments in
connection with these claims, proceedings and investigations, there is a possibility of loss of revenues, injunctions and disruption
of business. Furthermore, we and other manufacturers of prescription opioid medications have been, and will likely continue to
be, subject to negative publicity and press, which could harm our brand and the demand for our products. In addition, current or
future regulatory and legislative proposals could impact us and other manufacturers of prescription opioid medications. See the
risk factor “Our business and financial condition may be adversely affected by legislation” for more information.
In addition, our current
and former products may cause or appear to cause serious adverse side effects or potentially dangerous drug interactions if misused
or improperly prescribed or as a result of faulty surgical technique. Any failure to effectively identify, analyze, report and
protect adverse event data and/or to fully comply with relevant laws, rules and regulations around adverse event reporting could
expose the Company to legal proceedings, penalties, fines and/or reputational damage.
Also, through the
use of social media, plaintiff’s attorneys have a wide variety of tools to advertise their services and solicit new clients
for litigation, including using judgments and settlements obtained in litigation against us or other pharmaceutical companies
as an advertising tool. For these or other reasons, any significant product liability or mass tort litigation in which we are
a defendant could have a larger number of plaintiffs than such actions have seen historically and we could also see an increase
in the number of cases filed against us because of the increasing use of widespread and media-varied advertising. Furthermore,
a ruling against other pharmaceutical companies in product liability or mass tort litigation in which we are not a defendant could
have a negative impact on pending litigation where we are a defendant.
In addition, in certain
circumstances, such as in the case of products that do not meet approved specifications or for which subsequent data demonstrate
such products may be unsafe, ineffective or misused, it may be necessary for us to initiate voluntary or mandatory recalls or withdraw
such products from the market. Any such recall or withdrawal could result in adverse publicity, costs connected to the recall and
loss of revenue. Adverse publicity could also result in an increased number of additional product liability claims, whether or
not these claims have a basis in scientific fact. See the risk factor “Public concern around the abuse of opioids or other
products, including without limitation law enforcement concerns over diversion or marketing practices, regulatory efforts to combat
abuse, and litigation could result in costs to our business” for more information.
We are also inherently
exposed to litigation concerning patents and proprietary rights which can be protracted and expensive. Companies routinely bring
litigation against applicants and allege patent infringement or other violations of intellectual property rights as the basis
for filing suit against an applicant. Elite develops, owns, and/or manufactures generic and branded pharmaceutical products and
such drug products may be subject to such litigation. Litigation often involves significant expense and can delay or prevent introduction
or sale of our products.
There may also be situations where we use our business judgment
and decide to market and sell products, notwithstanding the fact that allegations of patent infringement(s) have not been finally
resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent
for infringement include, among other things, damages measured by the profits lost by the patent owner and not by the profits earned
by the infringer. In the case of a willful infringement, the definition of which is subjective, such damages may be trebled. Moreover,
because of the discount pricing typically involved with bioequivalent products, patented brand products generally realize a substantially
higher profit margin than bioequivalent products. An adverse decision in a case such as this or in other similar litigation could
have a material adverse effect on our business, financial position and results of operations and could cause the market value of
our Common Stock to decline.
If we are found liable
in any lawsuits, including patent infringement, violation of proprietary rights, product liability claims or actions related to
our manufacture, sales, marketing or pricing practices or the sale, marketing and/or distribution of prescription opioid medications,
or if we are subject to government investigations or product recalls, it could result in the imposition of damages, including
punitive damages, fines, reputational harm, civil lawsuits, criminal penalties, interruptions of business, modification of business
practices, equitable remedies and other sanctions against us or our personnel as well as significant legal and other costs. We
may also voluntarily settle cases even if we believe that we have meritorious defenses because of the significant legal and other
costs that may be required to defend such actions. Any judgments, claims, settlements and related costs could be well in excess
of any applicable insurance. As a result, we may experience significant negative impacts on our operations. To satisfy judgments
or settlements, we also may need to seek financing, which may not be available on terms acceptable to us, or at all, when required.
Judgments also could cause defaults under our debt agreements and/or restrictions on our product use and we could incur losses
as a result. Any of the risks above could have a material adverse effect on our business, financial condition, results of operations
and cash flows and ability to operate as a going concern.
The occurrence or possibility
of any such result may cause us to pursue one or more significant corporate transactions as well as other remedial measures, including
internal reorganizations, restructuring activities, strategic corporate alignments, cost saving initiatives or asset sales. See
the risk factor “Our ability to fund our operations, maintain liquidity and meet our financing obligations is reliant on
our operations, which are subject to significant risks and uncertainties” for more information. Likewise, any internal reorganizations,
restructuring activities, strategic corporate alignments, cost-saving initiatives or asset sales may be complex, could entail significant
costs and charges or could otherwise negatively impact shareholder value and there can be no assurance that we will be able to
accomplish any of these alternatives on terms acceptable to us, or at all, or that they will result in their intended benefits.
Please also see “Item
3. Legal Proceedings” below for further details.
The pharmaceutical industry is highly
competitive and subject to rapid and significant technological change, which could impair our ability to implement our business
model.
The pharmaceutical
industry is highly competitive, and we may be unable to compete effectively. Competitive factors faced include, without limitation,
product development, safety, efficacy, commercialization, marketing, promotion, product quality, cost-effectiveness, reputation,
service, patient convenience, access to scientific and technical information, and ability to manage operations in an economic
environment that is severely impacted by a global pandemic such as COVID-19. In addition, the pharmaceutical industry is undergoing
rapid and significant technological change, and we expect competition to intensify as technical advances in each field are made
and become more widely known. An increasing number of pharmaceutical companies have been or are becoming interested in the development
and commercialization of products incorporating advanced or novel drug delivery systems. We expect that competition in the field
of drug delivery will increase in the future as other specialized research and development companies begin to concentrate on this
aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources
in the development of their own drug delivery systems and technologies and some have invested funds in specialized drug delivery
companies. Many of our competitors have longer operating histories and, they, and future competitors, may have greater financial,
research and development, marketing, and other resources than we do. Furthermore, recent trends in this industry include market
consolidation, which may further concentrate financial, technical, market and other strengths and resources with the result being
a further increase competitive pressures existent in this industry. Such companies may develop new formulations and products,
or may improve existing ones, more efficiently than we can. Our success, if any, will depend in part on our ability to keep pace
with the changing technology in the fields in which we operate.
As we expand our presence
in the generic pharmaceuticals market our product candidates may face intense competition from brand-name companies that have
taken aggressive steps to thwart competition from generic companies. In particular, brand-name companies continue to sell or license
their products directly or through licensing arrangements or strategic alliances with generic pharmaceutical companies (so-called
“authorized generics”). No significant regulatory approvals are required for a brand-name company to sell directly
or through a third party to the generic market, and brand-name companies do not face any other significant barriers to entry into
such market. In addition, such companies continually seek to delay generic introductions and to decrease the impact of generic
competition, using tactics which include, without limitation:
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obtaining new patents on drugs whose original patent protection
is about to expire;
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filing patent applications that are more complex and costly
to challenge;
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filing suits for patent infringement that automatically delay
approval from the FDA;
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filing citizens’ petitions with the FDA contesting approval
of the generic versions of products due to alleged health and safety issues;
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developing controlled-release or other “next-generation”
products, which often reduce demand for the generic version of the existing product for which we may be seeking approval;
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changing product claims and product labeling;
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developing and marketing as over-the-counter products those
branded products which are about to face generic competition; and,
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making arrangements with managed care companies and insurers
to reduce the economic incentives to purchase generic pharmaceuticals.
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These strategies may
increase the costs and risks associated with our efforts to introduce our generic products under development and may delay or
prevent such introduction altogether.
New tariffs and evolving trade policy
between the United States and other countries, including China and Mexico, may have an adverse effect on our sourcing of critical
raw materials from suppliers located outside of the United States and corresponding adverse effects on our business and results
of operations.
Some of our suppliers,
including those of critical active pharmaceutical ingredients are located outside of the United States. There is currently significant
uncertainty about the future relationship between the U.S. and various other countries, including China and Mexico, with respect
to trade policies, treaties, government regulations and tariffs. The Trump Administration has called for substantial changes to
U.S. foreign trade policy, including the possibility of imposing greater restrictions on international trade and significant increases
in tariffs on goods imported into the U.S. These tariffs could potentially disrupt our existing supply chains and impose additional
costs on our business, including, without limitation, costs with respect to raw materials upon which our business depends. Furthermore,
if tariffs, trade restrictions or trade barriers are placed on products such as ours by foreign governments, especially China,
it could cause us to raise prices for our products, which may result in the loss of customers with a corresponding detrimental
impact on our business, financial condition, results of operations, cash flow and ability to operate. If we are unable to pass
along increased costs to our customers, our margins could be adversely affected, with a corresponding detrimental impact on our
business, financial condition, results of operations, cash flow and ability to operate. Additionally, it is possible further tariffs
may be imposed that could affect imports of active pharmaceutical ingredients and excipients used in our products, or our business
may be adversely impacted by retaliatory trade measures taken by China or other countries, including restricted access to such
raw materials used in our products, causing us to raise prices or make changes to our products, which could require significant
resources and time for regulatory compliance. This would have a corresponding detrimental impact on our business, financial condition,
results of operations, cash flow and ability to operate. Furthermore, the continued threats of tariffs, trade restrictions and
trade barriers could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales profit
margins, profit splits, raw material costs and ability to source raw materials. For example, the Trump Administration has placed
tariffs on certain goods imported from China. In January 2020, the U.S. and China agreed to roll back certain tariffs, expand
trade purchases and renew commitments on intellectual property, technology transfer and currency practices. Nevertheless, given
the volatility and uncertainty regarding the scope and duration of these tariffs, and the effects of the global COVID-19 pandemic
on such trade and diplomatic relations, the impact on our operations and results in uncertain and could be significant. Given
the unpredictable regulatory environment in China and the U.S. and uncertainty regarding how the U.S. or foreign governments will
act with respect to tariffs, international trade agreements and policies, further governmental action related to tariffs, additional
taxes, regulatory changes or other retaliatory trade measures in the future could occur with a corresponding detrimental impact
on our business, financial condition, results of operations, cash flow and ability to operate.
Even after regulatory approval, we
will be subject to ongoing significant regulatory obligations and oversight as evidenced by the FDA’s removal from the market
of our Lodrane® extended release product line in 2011.
Even if regulatory
approval is obtained for a particular product candidate, the FDA and foreign regulatory authorities may, nevertheless, impose significant
restrictions on the indicated uses or marketing of such products, or impose ongoing requirements for post-approval studies. Following
any regulatory approval of our product candidates, we will be subject to continuing regulatory obligations, such as safety reporting
requirements, and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products.
If we become aware of previously unknown problems with any of our product candidates here or overseas or at our contract manufacturers’
facilities, a regulatory agency may impose restrictions on our products, our contract manufacturers or on us, including requiring
us to reformulate our products, conduct additional clinical trials, make changes in the labelling of our products, implement changes
to or obtain re-approvals of our contract manufacturers’ facilities or withdraw the product from the market. In addition,
we may experience a significant drop in the sales of the affected products, our reputation in the marketplace may suffer and we
may become the target of lawsuits, including class action suits. Moreover, if we fail to comply with applicable regulatory requirements,
we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions,
and criminal prosecution. Any of these events could harm or prevent sales of the affected products or could substantially increase
the costs and expenses of commercializing and marketing these products.
In March 2011, the
FDA issued a directive removing from the market approximately 500 cough/cold and allergy products, including our Lodrane®
extended release product line. At that time, the Lodrane® extended release products constituted approximately 97% of our revenues.
Agreements between branded pharmaceutical
companies and generic pharmaceutical companies are facing increased government scrutiny in the United States and Internationally.
There are numerous
and continuing litigation in which generic companies challenge the validity or enforceability of an innovator products patents
and/or the applicability of such patents to a generic applicant’s products. Settlement of such litigation is a common outcome,
with review of such agreements by the U.S. Federal Trade Commission (the “FTC”) and the Antitrust Division
of the Department of Justice (the “DOJ”) being required by law. The FTC has stated publicly its view that some
of these settlement agreements violate antitrust laws and has commenced actions against the branded and generic companies that
are parties to these agreements. Accordingly, in the event of the Company being party to a settlement agreement, either as the
branded, innovator product owner, or as the generic applicant, we may receive formal or informal requests from the FTC for information
about a settlement agreement and there is a risk of the FTC alleging a violation of antitrust laws and commencing an action against
us.
In addition, the United
States Congress has proposed legislation that would limit the types of settlement agreements generic manufacturers can enter into
with brand companies. In 2013, the Supreme Court, in FTC v. Actavis, determined that reverse payment patent settlements
between generic and brand companies should be evaluated under the rule of reason, and provided limited guidance beyond the selection
of this standard. Due to the court’s non-articulation of a precise rule of lawfulness for such settlements, there may be
extensive litigation over what constitutes a reasonable and lawful patent settlement between and brand and generic company.
The impact of such
future litigation, if any, legislative proposals, and potential future court decisions is uncertain, and there can be no assurances
that such impact will not have an adverse effect on the Company’s business, its financial condition, results of operations,
cash flows and its stock price.
We may incur significant liability
if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.
In jurisdictions including,
without limitation, the United States, a company is not permitted to promote drugs for uses that are not described in the product’s
labelling and that differ from those that were approved or cleared by the FDA. Such users are commonly referred to as “off-label
uses”. Under what is known as the “practice of medicine”, physicians and other healthcare practitioners may prescribe
drug products for off-label or unapproved uses. While the FDA does not regulate a physician’s choice of medications, treatments,
or product uses, the Federal Food Drug and Cosmetic Act (“FFDC”) and FDA regulations significantly restrict
permissible communications on the subject of off-label uses of drug products by pharmaceutical companies. The FDA, FTC, the Office
of the Inspector General of the Department of Health and Human Services (“HHS”), the DOJ and various state Attorneys
General actively enforce laws and regulations that prohibit the promotion of off-label uses. A company that is found to have improperly
promoted off-label uses may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages,
exclusion from federal funded healthcare programs and potential liability under the federal False Claims Act and any applicable
state false claims act. Conduct giving rise to such liability could also form the basis for private civil litigation by third-party
payers or other persons claiming to be harmed by such conduct.
Notwithstanding the
regulatory restrictions on off-label promotion, the FDA’s regulations and judicial case law allows companies to engage in
some forms of truthful, non-misleading and non-promotional speech concerning the off-label use of products. Elite believes it
and its marketing partners comply with these restrictions.
Nonetheless, the FDA,
HHS, DOJ, and/or state Attorneys General, and qui tam relators may take the position that the Company is not in compliance
with such requirements, and if such non-compliance is proven, the consequences of such may have an adverse material effect on
our business, financial condition, results of operations, cash flows and stock price.
Our products contain narcotic ingredients.
As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs may be subject to increased litigation
risk and new regulation, including the development of Risk Evaluation and Mitigation Strategy (“REMS”), which
may prove difficult or expensive to comply with.
Some of our current
products and products under development contain narcotics. Misuse or abuse of such drugs can lead to physical or other hard. The
FDA and/or the DEA may impose new regulations concerning the manufacture, storage, transportation, distribution, and sale of prescription
narcotics. Such regulations may include new labelling requirements, the development and implementation of a formal REMS, restrictions
on prescription and sale of such products and mandatory reformulation in order to make abuse of such products more difficult. In
2007, Congress passed legislation authorizing the FDA to require companies to undertake post-approval studies in order to assess
known or signaled potential serious safety risks and to make any labelling changes necessary to address safety risks. Congress
also empowered the FDA to require companies to formulate REMS to confirm a drug’s benefits exceed its risks. In 2011, the
FDA issued letters to manufacturers of long-acting and extended-release opioids requiring them to develop and submit to the FDA
a post-market REMS plan to require that training is provided to prescribers of these products and that information is provided
to prescribers that they can use in counselling patients on the risks and benefits of opioid drug use. Elite does not currently
own a product that requires a REMS plan, but some of the products in our pipeline may require a REMS plan. The federal government
has also released a comprehensive action plan to reduce prescription drug abuse, which may include proposed legislation to amended
existing controlled substances laws to require healthcare practitioners who request DEA registration to prescribe controlled substances
to receive training on opioid prescribing practices as a condition of registration. In addition, state health departments and boards
of pharmacy have authority to regulate distribution and may modify their regulations with respect to prescription narcotics in
an attempt to curb abuse.
Such new regulations
or requirements may be difficult or cost prohibitive for us to comply with, resulting in delays in the commercialization of new
products, and decreased profitability of existing and new products. Such occurrences may have material adverse effects on our
business, financial condition, results of operations, cash flows and stock price.
Our business and financial condition may be adversely affected
by legislation or regulatory reform of the healthcare system in the United States.
In April 2018, New
York enacted a statute called the Opioid Stewardship Act (the Stewardship Act), which, among other things, provided for certain
sellers and distributors of certain opioids in the state of New York (the Contributing Parties) to make payments to a newly created
Opioid Stewardship Fund (the Fund). By its terms, the Stewardship Act required Contributing Parties to pay a total of up to $100
million annually into the Fund, with each Contributing Party’s share based on the total amount of morphine milligram equivalents
of certain opioids sold or distributed by the Contributing Party in the state of New York during the preceding calendar year, subject
to potential adjustments by the New York State Department of Health. Failure of a Contributing Party to make required reports or
pay its ratable share, or a Contributing Party passing on the cost of its ratable share to a purchaser, could subject the Contributing
Party to penalties. In December 2018, the U.S. District Court for the Southern District of New York held the Stewardship Act unconstitutional.
This ruling is on appeal. If the decision is reversed, we may be deemed to be a Contributing Party under the Stewardship Act and
even if we are not considered to be a Contributing Party, or such a determination is never made, other entities may attempt to
seek reimbursement from us for payments made related to products manufactured by us and distributed in New York. Furthermore, the
application of the Stewardship Act may require additional regulatory guidance, which could be substantially delayed, increasing
the uncertainty as to the ultimate effect of the Stewardship Act on us. If we are ultimately deemed to be a Contributing Party
under the Stewardship Act, or similar legislation that could be enacted by New York or other jurisdictions, compliance with those
laws could have an adverse effect on our business, results of operations, financial condition and cash flows. Additionally, in
October 2018, the U.S. Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients
and Communities Act (H.R. 6). Intended to achieve sweeping reform to combat the opioid epidemic, H.R. 6, among other provisions,
amends related laws administered by the FDA, DEA and CMS. Among other things, the law: amends requirements related to the FDA’s
authority to include packaging requirements in REMS requirements; increases civil and criminal penalties for drug manufacturers
and distributors for failing to maintain effective controls against diversion of opioids or for failing to report suspicious opioid
orders; requires the DEA to estimate the amount of opioid diversion when establishing manufacturing and procurement quotas; implements
expanded anti-kickback and financial disclosure provisions; and authorizes the Department of Health and Human Services to implement
a demonstration program which would award grants to hospitals and emergency departments to develop, implement, enhance or study
alternative pain management protocols and treatments that limit the use and prescription of opioids in emergency departments. While
the effect of this legislation is still uncertain, it is likely that our products will be affected by enforcement of the legislation,
including through related policies and implementing regulations. There can be no assurances that the effects of this legislation
will not be detrimental to our business, results of operations, financial condition, cash flow or ability to operate.
Furthermore, the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively commonly referred
to as the “Affordable Care Act” may affect the operational results of companies in the pharmaceutical industry such
as ours by imposing additional costs. Effective January 1, 2010, the Affordable Care Act, amongst other changes, increased the
minimum Medicaid drug rebates for pharmaceutical companies and revised the definition of “average manufacturer price”
for reporting purposes, which may affect the amount of Medicaid drug rebates to states related to the sales of our products, whether
such sales are made directly by Company or by one of the Company’s licensees. Beginning in 2011, the law also imposed a
significant annual fee on companies that manufacture or import branded prescription drug products.
The Affordable Care
Act contemplates the promulgation of significant future regulatory action which may also further affect our business. In addition,
since its enactment, the legislative and executive branches of the federal government have proposed multiple revisions to the
Affordable Care Act, the effect of which, if implemented, may result in changes to the health care laws or regulatory framework
that could result in the reduction of revenues or increased costs which could also have a material adverse effect on our business,
results of operations and financial condition.
Please also see the
above risk factor titled “The availability of third-party reimbursement for our products is uncertain, and thus we may find
it difficult to maintain current price levels. Additionally, the market may not accept those products for which third party reimbursement
is not adequately provided”.
The DEA limits the availability of
the active ingredients used in many of our current products and products in development, as well as the production and distribution
of these products, and, as a result, our procurement, production, and distribution quotas may not be sufficient to meet commercial
demand or complete clinical trials.
The DEA regulates
chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk
of substance abuse and Schedule V substances the lowest risk. The active ingredients in some of our current products and products
in development, including, without limitation, hydromorphone, methadone, phentermine, phendimetrazine and oxycodone, are listed
by the DEA as Scheduled substances under the Controlled Substances Act of 1970. Consequently, their manufacture, shipment, storage,
sale, and use are subject to a high degree of regulation. Furthermore, the DEA limits the availability of the active ingredients
used in many of our current products and products in development and we and/or our contract customers and suppliers, must annually
apply to the DEA for procurement quotas in order to obtain and distribute these substances. As a result, our procurement and production
quotas may not be sufficient to meet commercial demand or to complete clinical trials. Moreover, the DEA may adjust these quotas
from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Any
delay or refusal by the DEA in establishing our quotas, or modification of our quotas, for controlled substances could delay or
result in the stoppage of our clinical trials or product launches or could cause trade inventory disruptions for those products
that already been launched, which could have a material adverse effect on our business, financial position, cash flows and stock
price.
Approvals for our new generic drug
products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.
The FDA may institute
changes to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval for our new
generic products. For instance, in July 2012, the Generic Drug Fee User Amendments of 2012 (“GDUFA”) was enacted
into law. The GDUFA legislation implemented fees for new ANDAs, Drug Master Files, product and establishment fees and a one-time
fee for back-logged ANDAs pending approval as of October 1, 2012. In return, the program is intended to provide faster and more
predictable ANDA reviews by the FDA and increased inspections of drug facilities. Under GDUFA, generic product companies face
significant penalties for failure to pay the new user fees, including rendering an ANDA not “substantially complete”
until the fee is paid. Any failure by us or our suppliers to pay the fees or to comply with the other provisions of GDFUA may
impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus may have a material
adverse effect on our business, results of operations and financial condition.
In addition to the
implementation of new fees and review procedures by the FDA, the FDA may also implement other changes that may directly affect
some of our ANDA filings pending approval from the FDA, such as changes to guidance from the FDA regarding bioequivalency requirements
for particular drugs. Such changes may cause our development of such generic drugs to be significantly more difficult or result
in delays in FDA approval or result in our decision to abandon or terminate certain projects. Any changes in FDA requirements
may make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus have a material
adverse effect on our business, results of operations and financial condition.
The illegal distribution and sale by
third parties of counterfeit versions of our products or of stolen products could have a negative impact on our reputation and
a material adverse effect on our business, results of operations and financial condition.
Third parties could
illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards
that our products undergo. Counterfeit products are frequently unsafe or ineffective and can be life-threatening. Counterfeit
medicines may contain harmful substances, the wrong dose of the active pharmaceutical ingredient or no active pharmaceutical ingredients
at all. However, to distributors and users, counterfeit products may be visually indistinguishable from the authentic version.
Reports of adverse
reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic
product. It is possible that adverse events caused by unsafe counterfeit products will mistakenly be attributed to the authentic
product. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored, and which
are sold through unauthorized channels could adversely impact patient safety, our reputation, and our business.
Public loss of confidence
in the integrity of pharmaceutical products as a result of counterfeiting or theft could have a material adverse effect on our
business, results of operations and financial condition.
We received a Complete Response Letter
from the FDA that indicated that our SequestOx™ NDA is not ready for approval in its present form. We have paused further
development of this product and we cannot assure that development will restart. If we are unable to obtain approval for SequestOx™
or if we incur significant costs or delays in obtaining such approval, our ability to commercialize SequestOx™ may be materially
adversely affected.
In July 2016, the
FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx NDA is
complete and the application is not ready for approval in its present form. On December 21, 2016, we met with the FDA for an end-of-review
meeting to discuss steps that we could take to obtain approval of SequestOx. Based on the FDA response, we believe there is a
path forward to address the issues cited in the CRL, with such path forward including modification of the SequestOx formulation,
and the successful completion of in vitro and in vivo studies. If we are unable to modify the formulation or if we are unable
to successfully complete the required studies, we will not meet the requirements specified by the FDA for resubmission of the
NDA. Furthermore, there can be no assurances given that the FDA will eventually approve our NDA. If we are unable to obtain approval
for SequestOx, or if we incur significant costs or delays in obtaining such approval, our ability to commercialize SequestOx may
be materially adversely affected. Furthermore, in the event that the Company does receive marketing approval for SequestOx™,
there can be no assurances of the Company realizing future revenues or profits related to this product, or that any such future
revenues and profits would be in amounts that provide adequate return on the significant investments made to secure this marketing
authorization. The Company has currently paused further development of SequestOx due to the prohibitive cost of such and attendant
risks related thereto.
Our business and operations could be negatively affected
by shareholder activism, which could cause us to incur significant expenses, hinder execution of our business strategy and impact
our share price
In recent years, shareholder
activism involving corporate governance, fiduciary duties of Directors and Officers, strategic direction and operations has become
increasingly prevalent. If we become the subject of such shareholder activism, their demands may disrupt our business and divert
the attention of our management, Board and employees. Also, we may incur substantial costs, including legal fees and other expenses,
related to such activist shareholder matters. Perceived uncertainties resulting from such activist shareholder matters may result
in loss of potential business opportunities with our current and potential customers and business partners, be exploited by our
competitors and make attracting and retaining qualified personnel more difficult. In addition, such shareholder activism may cause
significant fluctuations in our share price based on temporary or speculative market perceptions, uncertainties or other factors
that do not necessarily reflect the underlying fundamentals and prospects of our business.
The effects of shareholder
activism pursued against the Company could have an adverse material effect on our business, financial condition, results of operations,
cash flows and stock price.
Extensive industry regulation has had
and will continue to have, a significant impact on our business in the area of cost of goods, especially our product development,
manufacturing and distribution capabilities.
We, like all other
pharmaceutical companies located or engaged in business in the U.S. are subject to extensive, complex, costly and evolving regulation
by the federal government, including the FDA and, in the case of controlled drugs, the DEA, as well as applicable state government
agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substance Act and multiple other federal statutes, regulations
and guidance govern or influence the development, testing, manufacture, packing, labelling, storing, record keeping, safety, approval,
advertising, promotion, sale, shipment and distribution of our products.
The process for obtaining
governmental approval to manufacture and market pharmaceutical products is rigorous, time-consuming and costly and we cannot predict
the extent to which we may be affected by legislative and regulatory developments. We are dependent on receiving FDA and other
governmental or third-party approvals prior to manufacturing, marketing and shipping our products. The FDA approval process for
a particular product candidate can take several years and requires us to dedicate substantial resources to complete all activities
necessary to secure approvals and we may not be able to obtain regulatory approval for our product candidates in a timely manner,
or at all. In order to obtain approval for our generic product candidates, we must demonstrate that our drug product is therapeutically
equivalent and bioequivalent to a drug previously approved by the FDA through the drug approval process, known as the reference
listed drug (“RLD”) or reference standard drug (“RS”). Bioequivalence may be demonstrated in vivo or in
vitro by comparing the generic product candidate to the innovator drug product. During the FDA review process, the FDA may request
additional information and studies to support approval of an application, which could delay approval of the product and impair
our ability to compete with other versions of the generic drug product.
Inherent to this process
is the possibility that we will not obtain FDA or other necessary approvals, or that the rate, timing and cost of such approvals
will adversely affect our product introduction plans or results of operations. We may carry inventories of certain products in
anticipation of launch and if such products are not subsequently launched, we may be required to write-off the related inventory,
if such inventories have no foreseeable commercial value to us.
In addition, facilities
used to manufacture and/or test materials and drug products we market are subject to periodic inspection of facilities by the
FDA, the DEA, and other authorities to confirm that firms are in compliance with all applicable regulations. The FDA conducts pre-approval
and/or post-approval inspections to determine whether systems and processes are in compliance with cGMP and other FDA regulations.
A Form 483 notice is generally issued at the conclusion of an FDA inspection and lists conditions the FDA inspectors believe may
violate cGMP or other FDA regulations. If more serious violations are identified, the FDA may take additional action, such as
issuing warning letters, import alerts, etc. The DEA and comparable state-level agencies also heavily regulate the manufacturing,
holding, processing, security, record-keeping and distribution of drugs that are controlled substances. We manufacture and/or
distribute certain controlled substances and are accordingly subject to oversight, regulation and inspection by the DEA. The DEA
periodically inspects facilities for compliance with its regulations. If our manufacturing facilities or those of our suppliers
fail to comply with applicable regulatory requirements, it could result in regulatory action and additional costs.
Our inability or the
inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things,
delays in or denials of new product approvals, warning letters, import alerts, fines, consent decrees restricting or suspending
manufacturing operations, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and/or
criminal prosecution. Any of these or other regulatory actions could have an adverse material effect on our business, financial
condition, results of operations, cash flows and stock price.
While we have instituted
internal compliance programs, if these programs do not meet regulatory agency standards or if compliance is deemed deficient in
any significant way, it could have an adverse material effect on our business, financial condition, results of operations, cash
flows and stock price.
Our manufacturing operations as well
as our suppliers' manufacturing operations are subject to establishment registration by the FDA and periodic inspections by the
FDA to assure compliance regarding the manufacturing of our products. If we or our suppliers do not maintain the current registrations
or if we or our partners receive notices of manufacturing and quality-related observations following inspections by the FDA, our
operating results would be materially negatively impacted.
Our facilities, as
well as those of applicable suppliers, rely on maintaining current FDA, and DEA if applicable, registration and other license
to produce and develop generic drugs and raw materials used in such operations. If we, or one of our suppliers does not successfully
renew and maintain current FDA, DEA and other required licenses, our operations and financial results would be negatively impacted.
We and our suppliers are subject to periodic inspection by the FDA, DEA and other regulatory agencies, as applicable, to assure
regulatory compliance regarding the manufacture and distribution of pharmaceutical products and raw materials. These regulatory
bodies impose stringent mandatory requirements on the manufacture and distribution of pharmaceutical products to ensure their
safety and efficacy. If we or any of our third party suppliers receive notices of manufacturing and quality-related observations
and are unable to satisfactorily resolve the issues and observations identified in a timely fashion, there could be a material
adverse effect on our business, financial condition, results of operations, cash flow and stock price.
If brand pharmaceutical companies are successful in limiting
the use of generics through legislative and regulatory efforts, our sales of generic products may suffer
Many brand pharmaceutical companies have
increasingly used state and federal legislative and regulatory means to delay generic competition. These efforts have included,
without limitation:
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Pursuing new patents for existing
products which may be granted prior to the expiration of an existing patent, thereby
achieving extended patent protection for additional years or otherwise delay market entry
of generic competition;
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Using
the Citizen Petition process to request amendments to FDA standards;
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Seeking
changes to U.S. Pharmacopeia, an organization that publishes industry recognized compendia
of drug standards;
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Attaching
patent extension amendments to non-related federal legislation;
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Engaging
in state by state initiatives to enact legislation that restricts the substitution of
some generic drugs, which could have an impact on products that we are developing;
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Persuading
regulatory bodies to withdraw the approval of brand-name drugs for which the patents
are about to expire and converting the market to another product of the brand company
on which longer patent protection exists;
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Entering
into agreements whereby other generic companies will begin to market an authorized generic
at the same time or after generic competition initially enters the market;
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Filing
suits for patent infringement and other claims that may delay or prevent regulatory approval,
manufacture and/or scale of generic products;
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Introducing
“next generation” products prior to the expiration of market exclusivity
for the reference product, which often materially reduces demand for the generic or the
reference product for which we seek regulatory approval for a generic equivalent.
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Some pharmaceutical
companies have lobbied the United States Congress for amendments to the Hatch-Waxman Act that would give them additional advantages
over generic competitors. For example, although the term of a company’s drug patent can be extended to reflect a portion
of the time an NDA is under regulatory review, some companies have proposed extending the patent term by a full year for each
year spent in clinical trials rather than the one-half year that is currently permitted.
If proposals like
these were to become effective, or if any other actions, such as those listed above or otherwise, by our competitors and other
third parties to prevent or delay activities necessary to the approval, manufacture, distribution or sale of our products are
successful, our entry in to the market and our ability to generate revenues associated with new products may be delayed, reduced
or eliminated, any or all of which could have a material adverse effect on our business, financial condition, results of operations,
cash flows and stock price.
Health care initiatives and other third-party
payor cost-containment pressures have and could continue to cause us to sell our products at lower prices, resulting in decreased
revenues.
Some of our products
that are marketed under license granted to marketing partners such as Lannett, Glenmark and TAGI, in turn, purchased or reimbursed
by state and federal government authorities, private health insurers and other organizations, such as health maintenance organizations,
or HMOs and managed care organizations, or MCOs. Third-party payors increasingly challenge pharmaceutical product pricing. There
also continues to be a trend toward managed health care in the United States. Pricing pressures by third-party payors and the
growth of organizations such as HMOs and MCOs could result in lower prices and a reduction in demand for our products.
One such governmental
program, known as the 340B Program, requires pharmaceutical manufacturers to enter into an agreement, called a pharmaceutical
pricing agreement (PPA), with the Secretary of Health and Human Services. Under the PPA, the manufacturer agrees to provide front-end
discounts on covered outpatient drugs purchased by specified providers, called “covered entities,” that serve the
nation’s most vulnerable patient populations. Outpatient prescription drugs, over the counter drugs (accompanied by a prescription),
and clinic-administered drugs within eligible facilities are covered.
In addition, legislative
and regulatory proposals and enactments to reform health care and government insurance programs could significantly influence
the manner in which pharmaceutical products and medical devices are prescribed and purchased. We expect there will continue to
be federal and state laws and/or regulations, proposed and implemented, that could limit the amounts that federal and state governments
will pay for health care products and services. The extent to which future legislation or regulations, if any, relating to the
health care industry or third-party coverage and reimbursement may be enacted or what effect such legislation or regulation would
have on our business remains uncertain. For example, H.R.987, the “Strengthening Health Care and Lowering Prescription Drug
Costs Act,” which incorporated a bipartisan effort to address prescription drug pricing combined with broader provisions
protecting the Affordable Care Act, was passed by the House of Representatives on May 16, 2019, but it is not expected to pass
in the Senate. The bill does represent bipartisan consensus on the need to reform the drug pricing system. Such measures or other
health care system reforms that are adopted could have a material adverse effect on our industry generally and our ability to
successfully commercialize our products or could limit or eliminate our spending on development projects and affect our ultimate
profitability, which could have a material adverse effect on our business, financial condition, results of operations, cash flow
and stock price.
We may become subject to federal and
state false claims litigation brought by private individuals and the government.
We are subject to
state and federal laws that govern the submission of claims for reimbursement. The FFCA imposes civil liability on individuals
or entities that knowingly submit, or cause to be submitted, false or fraudulent claims for payment to the government. Violations
of the FFCA and other similar laws may result in criminal fines, imprisonment and substantial civil penalties for each false claim
submitted (including civil penalties presently in excess of $22 thousand per claim, plus treble damages, plus liability for attorney’s
fees) and exclusion from federally funded health care programs, including Medicare and Medicaid. The FFCA also allows private
individuals to bring a suit on behalf of the government against an individual or entity for violations of the FFCA. These suits,
also known as Qui Tam or whistle-blower actions, may be brought by, with only a few exceptions, any private citizen who has material
information of a false claim that has not yet been previously disclosed. These suits have increased significantly in recent years
because the FFCA allows an individual to share in the amounts paid to the federal government in fines or settlement as a result
of a successful Qui Tam action, in addition to the recovery of legal fees in bringing such an action. If our past or present operations
are found to be in violation of any of such laws or any other governmental regulations that may apply to us, we may be subject
to penalties, including civil and criminal penalties, damages, fines, exclusion from federal health care programs and/or the curtailment
or restructuring of our operations. Any penalties, damages, fines, curtailment, or restructuring of our operations could adversely
affect our ability to operate our business and our financial results. Action against us for violation of these laws, even if we
successfully defend against them, could cause us to incur significant legal expenses and divert our management’s attention
from the operation of our business.
Recently, the Department
of Justice has begun to use the 1961 federal Travel Act as a tool to pursue criminal charges in the case of health care kickback
and commercial bribery allegations. This law was enacted as part of the Kennedy administration’s war on organized crime.
It formed the basis for a federal enforcement action against a Texas physician-owned specialty hospital and a number of surgeons
and administrators, who were convicted of conspiring to pay or receive bribes in exchange for referrals of patients in violation
of a state commercial bribery law. Importantly, this case was not limited to claims covered under federal programs, and the failure
of the state to bring charges under its own statute did not prevent the federal case from proceeding. The Travel Act may be used
by the Justice Department as a way to expand its reach to penalize kickbacks and similar arrangements even when the Anti-Kickback
Statute and FFCA would not apply. These efforts could increase our vulnerability to litigation and penalties if our past or present
operations are found to be in violation of applicable law which could have a material adverse effect on our business, financial
condition, results of operations, cash flow and stock price.
The design, development, manufacture
and sale of our products involves the risk of product liability claims by consumers and other third parties and insurance against
such potential claims is expensive and may be difficult to obtain.
The design, development,
manufacture, distribution and sale of our products involve an inherent risk of product liability claims and associated adverse
publicity. Insurance coverage is expensive, increasing in price to prohibitive levels, may be difficult to obtain or may be not
available in the future on acceptable terms, or at all. Although we currently maintain product liability insurance for our products
in amounts we believe to be commercially reasonable, if the coverage limits of these insurance policies are not adequate, a claim
brought against us, whether covered by insurance or not, could have a material adverse effect on our business, financial condition,
results of operations, cash flow and stock price.
The recent enactment of State laws
affecting the pricing of our products could have the effect of reducing our profitability
Since 2016, several
state legislatures have enacted laws regulating the pricing of various types of pharmaceutical products, including generic pharmaceutical
products. These laws vary in applicability and scope, and generally require manufacturers to notify various state agencies of
price increases over a given threshold for a given period of time and to include a justification for any price increases. At least
one state law (subsequently struck by the court) authorized the state attorney general to seek civil penalties and disgorgement
in the event a price increase is deemed unconscionable. To the extent these laws apply to our products, they could limit the prices
which the company may charge for its products and reduce the company’s profitability and could have a material adverse effect
on our business, growth prospects, financial condition, results of operations, cash flow and stock price.
Sales of our products may be adversely
affected by the continuing consolidation within the retail and wholesale pharmaceutical markets.
Our products, whether
sold directly by the Company or through third parties that are licensed to market and distribute our products are sold in large
part to a market that is comprised of a relatively few retail drug chains, wholesalers, and managed care organizations, with such
entities continuing to undergo consolidation. Such consolidation may provide these customers or our products with additional purchasing
leverage, and consequently, may increase the pricing pressures faced by us. Additionally, the emergence of large buying groups
representing independent retail pharmacies, and the prevalence and influence of managed care organizations and similar institutions,
enable those groups to extract price discounts on our products.
In addition, our revenues
and quarterly results comparisons may also be affected by fluctuations in the buying patterns of retail chains, major distributors,
and other trade buyers.
The occurrence of
any of the above could have a material adverse effect on our business, financial condition, results of operations, cash flow and
stock price.
Policies regarding returns, rebates,
allowances and chargebacks, and marketing programs adopted by wholesalers may reduce our revenues in future fiscal periods.
Based on industry
practice, generic drug manufacturers have liberal return policies and have been willing to give customers post-sale inventory
allowances. Such industry practices apply to the current sales of our products by our marketing partners, which in turn effect
profit splits and license fees received, and they will also affect prospective future sales made directly by Company.
Under these arrangements,
from time to time, customers are given credits on our generic products that are held by them in inventory after there is a decrease
in the market prices of the same generic products due to competitive pricing. Therefore, if new competitors enter the marketplace
and significantly lower the prices of any of their competing products, the price of our products would also likely be reduced.
As a result, we, or are marketing partners, would be obligated to provide credits to our customers who are then holding inventories
of such products, which could reduce sales revenue, profit splits, license fees and gross margin for the period the credit is
provided. Like most competitors in this market, our marketing partners, or us in the case of prospective direct sales made by
the Company, also give credits for chargebacks to wholesalers that have contracts with our marketing partners, or us, prospectively,
for their sales to hospitals, group purchasing organizations, pharmacies, or other customers. A chargeback is the difference between
the price the wholesaler pays and the price that the wholesaler’s end-customer pays for a product. Although, our marketing
partners establish, and prospectively we would also establish reserves based on prior experience and best estimates of the impact
that these policies may have in subsequent periods, we cannot ensure that such reserves established are adequate or that actual
product returns, rebates, allowances, and chargebacks will not exceed estimates. Differences between established reserves and
actual amounts of such credits and charges, could result in a material adverse effect on our business, financial condition, results
of operations, cash flow and stock price.
Unstable economic conditions may adversely
affect our industry, business, results of operations and financial condition.
The global economy
has undergone a period of significant volatility, especially during a global pandemic, such as the COVID-19 pandemic, which has
led to diminished credit availability, declines in consumer confidence, and increases in unemployment rates. There remains caution
about the stability of the U.S. economy, and we cannot assure that further deterioration in the financial markets will not occur.
These economic conditions have resulted in, and could lead to further, reduced consumer spending related to healthcare in general
and pharmaceutical products in particular.
In addition, we have
exposure to many different industries and counterparties, including our partners under our alliance and collaboration agreements,
suppliers of raw chemical materials, drug wholesalers and other customers that may be affected by an unstable economic environment.
Any economic instability may affect these parties’ ability to fulfil their respective contractual obligations to us, cause
them to limit or place burdensome conditions upon future transactions with us or drive us and our competitors to decrease prices,
each of which could materially and adversely affect our business, results of operations and financial condition, cash flows and
stock price.
If our product candidates do not achieve
market acceptance among physicians, patients, health care payors and the medical community, they will not be commercially successful,
and our business will be adversely affected.
The degree of market
acceptance of any of our approved product candidates among physicians, patients, health care payors and the medical community
will depend on a number of factors, including, without limitation:
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acceptable evidence of safety and efficacy;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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availability of alternative treatments;
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pricing and cost effectiveness;
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effectiveness of sales and marketing strategies; and,
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ability to obtain sufficient third-party coverage or reimbursement.
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If we are unable to
achieve market acceptance for our product candidates, then such product candidates will not be commercially successful, and our
business will be adversely affected.
In addition, even
if we are able to obtain regulatory approvals for our new products, the success of those products as well as the success of our
previously approved products, is dependent upon market acceptance. Levels of market acceptance for our new products could be affected
by several factors, including, without limitation:
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the availability of alternative products from our competitors;
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the prices of our products relative to those of our competitors;
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the timing of our market entry;
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the ability to market our products effectively at the retail
level;
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the perception of patients and the healthcare community, including
third-party payers, regarding the safety, efficacy and benefits of our drug products compared to those of competing products;
and,
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the acceptance of our products by government and private formularies.
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Some of these factors
are not within our control, and our products may not achieve expected levels of market acceptance. Additionally, continuing and
increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted
by the industry, government agencies and others which can call into question the utilization, safety, and efficacy of previously
marketed products. In some cases, studies have resulted, and may in the future result, in the discontinuance of product marketing
or other risk management programs such as the need for a patient registry. Any or all of the above could result in a material
adverse effect on our business, financial condition, results of operations, cash flow and stock price.
We may experience pricing pressure
on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and
future profitability.
We may experience
downward pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would
reduce our revenue and future profitability. Recent events have resulted in increased public and governmental scrutiny of the
cost of drugs, especially in connection with price increases following companies’ acquisition of the rights to certain drug
products. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information about
drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to
drug-price increases and pricing practices. Our revenue and future profitability could be negatively affected if these inquiries
were to result in legislative or regulatory proposals that limit our ability to increase the prices of our products which could
have a material adverse effect on our business, growth prospects, financial condition, results of operations, cash flow and stock
price.
In addition, in September
2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to justify price increases
of more than 10% in a 12-month period, and a large number of individual States have introduced legislation aimed at drug pricing
regulation, transparency or both. While this proposed legislation has not been enacted into law to date, our revenue and future
profitability could be negatively affected by the passage of this law or similar federal or state legislation. Furthermore, pressure
from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could
result in downward pressure on the prices of our products in the future, which could have a material adverse effect on our business,
growth prospects, financial condition, results of operations, cash flow and stock price.
Public concern over the abuse of opioid
medications, including increased legal and regulatory action, could negatively affect our business.
While Elite has de-emphasized
its programs with respect to opioids and will continue to focus on products other than opioids, certain governmental and regulatory
agencies, as well as state and local jurisdictions, are focused on the abuse of opioid medications in the United States. State
and local governmental agencies may investigate us as a manufacturer and/or distributor of medicines containing opioids or in
conjunction with their investigation of other pharmaceutical wholesale distributors, and others in the supply chain that have
a direct or indirect connection to our operations in relation to the distribution of opioid medications. In addition, multiple
lawsuits have been filed against other pharmaceutical manufacturers and distributors alleging, among other claims, that they failed
to provide effective controls and procedures to guard against the diversion of controlled substances, acted negligently by distributing
controlled substances to pharmacies that serve individuals who abuse controlled substances, and failed to report suspicious orders
of controlled substances in accordance with regulations. Additional governmental entities have indicated an intent to sue these
other manufacturers and distributors. While no such actions have been taken against us, the immediate effect on the Company has
been an inability to commercialize and market three opioid products approved during fiscal years prior to the twelve months ended
March 31, 2020 and a cessation of orders for another two other opioid products that had been marketed by our marketing partners.
During the year ended March 31, 2020, we disposed of four approved ANDA’s for opioid products. As of March 31, 2020, we
continue to hold one approved ANDA for an opioid product that, while approved by the FDA, has not been launched commercially.
Further, defense against any such opioid related lawsuits could be prohibitive with regards to cost resulting in an adverse material
effect on our business, financial condition, results of operations, cash flows and stock price. Similar allegations made against
us, even without litigation, could also negatively affect our business in various ways, including through increased costs and
harm to our reputation. In addition, an adverse resolution of any lawsuit or investigation could also have a material adverse
effect on our business, results of operations, cash flows and stock price.
Our business is dependent on market
perceptions of us and the safety and efficacy or our products. Negative publicity relating to us or our products could have a
material adverse effect on our business, results of operations, financial condition, and cash flows.
Market perceptions
or our business are important to us, especially market perceptions of the safety and quality of our products. If any of our products
or similar products that other companies distribute are subject to market withdrawal, recall, or are proven to be, or are claimed
to be, harmful to consumers, then this could have a material adverse effect on our business, results of operations, financial
condition, and cash flows. Furthermore, due to the importance of market perceptions, negative publicity associated with product
quality, illness or other adverse effects resulting from, or perceived to be resulting from, our products, or similar products
made by other companies, could have a material adverse effect on our business, results of operations, financial condition, and
cash flows.
If we are unable to protect our intellectual
property rights or avoid claims that we infringed on the intellectual property rights of others, our ability to conduct business
may be impaired.
Our success depends
on our ability to protect our current and future products and to defend our intellectual property rights. If we fail to protect
our intellectual property adequately, competitors may manufacture and market products similar to ours.
We currently hold
ten patents. We intend to file further patent applications in the future. We cannot be certain that our pending patent applications
will result in the issuance of patents. If patents are issued, third parties may sue us to challenge our patent protection, and
although we know of no reason why they should prevail, it is possible that they could. In addition to modification or revocation
of patents in legal proceedings, issued patents may later be modified or revoked by the U.S. Patent and Trademark Office or by
analogous foreign offices. It is likewise possible that our patent rights may not prevent or limit our present and future competitors
from developing, using or commercializing products that are similar or functionally equivalent to our products.
In addition, we may
be required to obtain licenses to patents, or other proprietary rights of third parties, in connection with the development and
use of our products and technologies as they relate to other persons’ technologies. At such time as we discover a need to
obtain any such license, we will need to establish whether we will be able to obtain such a license on favorable terms, if at
all. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of our
products.
We rely particularly
on trade secrets, unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by entering into
confidentiality agreements with licensees, suppliers, employees, and consultants. We cannot provide assurance that these agreements
will not be breached or circumvented. We also cannot be certain that there will be adequate remedies in the event of a breach.
Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. We cannot
be sure that our trade secrets and proprietary technology will not otherwise be obtained by other entities, such as government
or regulatory authorities, or become known, obtained, or independently developed by our competitors or by other entities through
means beyond our control. We also cannot be sure that, if patents are not issued with respect to products arising from research,
we will be able to maintain the confidentiality of information relating to these products. In addition, efforts to ensure our
intellectual property rights can be costly, time-consuming, and/or ultimately unsuccessful.
Our competitors or other third parties
may allege that we are infringing their intellectual property, forcing us to expend substantial resources in litigation, the outcome
of which is uncertain.
Companies that produce
branded pharmaceutical products routinely bring litigation against ANDA or similar applicants that seek regulatory approval to
manufacture and market generic forms of branded products, alleging patent infringement or other violations of intellectual property
rights. Patent holders may also bring patent infringement suits against companies that are currently marketing and selling approved
generic products. Litigation often involves significant expense. Additionally, if the patents of others are held valid, enforceable
and infringed by our current products or future product candidates, we would, unless we could obtain a license from the patent
holder, need to delay selling our corresponding generic product and, if we are already selling our product, cease selling and
potentially destroy existing product stock. Additionally, we could be required to pay monetary damages or royalties to license
proprietary rights from third parties and we may not be able to obtain such licenses on commercially reasonable terms or at all.
There may be situations
in which we may make business and legal judgments to market and sell products that are subject to claims of alleged patent infringement
prior to final resolution of those claims by the courts based upon our belief that such patents are invalid, unenforceable or
are not infringed by our marketing and sale of such products. This is commonly referred to in the pharmaceutical industry as an
“at-risk” launch. The risk involved in an at-risk launch can be substantial because, if a patent holder ultimately
prevails against us, the remedies available to such holder may include, among other things, damages calculated based on the profits
lost by the patent holder, which can be significantly higher than the profits we make from selling the generic version of the
product. Moreover, if a court determines that such infringement is willful, the damages could be subject to trebling. We could
face substantial damages from adverse court decisions in such matters. We could also be at risk for the value of such inventory
that we are unable to market or sell.
The occurrence of
any of the above could have a material adverse effect on our business, financial condition, results of operations, cash flow and
stock price.
We depend on qualified scientific and
technical employees and are increasingly dependent on our direct sales force, if key personnel were to leave us or if we are unsuccessful
in attracting qualified personnel, our ability to develop products and grow our business could be materially harmed.
Because of the specialized
scientific nature of our business, we are highly dependent upon our ability to continue to attract and retain qualified scientific
and technical personnel. We are not aware of any pending, significant losses of scientific or technical personnel. Loss of the
services of, or failure to recruit, key scientific and technical personnel, however, would be significantly detrimental to our
product-development programs. As a result of our small size and limited financial and other resources, it may be difficult for
us to attract and retain qualified officers and qualified scientific and technical personnel.
In addition, marketing
of our branded product, SequestOx™ will require much greater use of a direct sales force compared to marketing of our generic
products. Our ability to realize significant revenues from marketing and sales activities depends on our ability or the ability
of our partners to attract and retain qualified sales personnel. Competition for qualified sales personnel is intense. Any failure
to attract or retain qualified sales personnel could negatively impact our sales revenue and have a material adverse effect on
our business, results of operations, financial condition, cash flows and stock price.
We have entered into
employment agreements with our executive officers and certain other key employees. We do not maintain “Key Man”
life insurance on any executives.
If our collaboration or licensing arrangements
are unsuccessful, our revenues and product development may be limited.
We have entered into
several collaborations and licensing arrangements for the development of products. However, there can be no assurance that any
of these agreements will result in FDA approvals, or that we will be able to market any such finished products at a profit. Collaboration
and licensing arrangements pose the following risks:
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collaborations and licensing arrangements may be terminated,
in which case we will experience increased operating expenses and capital requirements if we elect to pursue further development
of the related product candidate;
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collaborators and licensees may delay clinical trials and prolong
clinical development, under-fund a clinical trial program, stop a clinical trial, or abandon a product candidate;
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expected revenue might not be generated because milestones may
not be achieved, and product candidates may not be developed;
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collaborators and licensees could independently develop, or
develop with third parties, products that could compete with our future products;
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the terms of our contracts with current or future collaborators
and licensees may not be favorable to us in the future;
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a collaborator or licensee with marketing and distribution rights
to one or more of our products may not commit enough resources to the marketing and distribution of our products, limiting
our potential revenues from the commercialization of a product;
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disputes may arise delaying or terminating the research, development,
or commercialization of our product candidates, or result in significant and costly litigation or arbitration; and,
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one or more third-party developers could obtain approval for
a similar product prior to the collaborator or licensee resulting in unforeseen price competition in connection with the development
product.
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Our operations could be disrupted if
our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are subject to cyber-attacks.
Our business depends
on the efficient and uninterrupted operation of our computer and communications systems and networks, hardware and software systems
and our other information technology. As such, we continuously invest financial and other resources to maintain, enhance, further
develop, replace or add to our information technology infrastructure. Such efforts carry risks such as cost overruns, project
delays and business interruptions, which could have a material adverse effect on our business, financial condition, results of
operations and cash flows. Additionally, these measures are not guaranteed to protect against all cybersecurity incidents.
In the ordinary course
of our business, we collect and maintain information, which includes confidential, proprietary and personal information regarding
our customers and employees, in digital form. Data maintained in digital form is subject to risk of cyber-attacks, which are increasing
in frequency and sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal
groups, “hackers” and others. Cyber-attacks could include the deployment of harmful malware, viruses, worms, denial-of-service
attacks, ransomware, social engineering and other means to affect service reliability and threaten data confidentiality, integrity
and availability. Despite our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a future
data compromise cannot be eliminated entirely, and risks associated with intrusion, tampering and theft remain. In addition, we
do not have insurance coverage with respect to system failures or cyber-attacks. If our systems were to fail or we are unable
to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems,
our operations and financial results could suffer.
We also have outsourced
certain elements and functions of our operations, including elements of our information technology infrastructure, to third parties,
some of which may be outside the U.S. As a result, we are managing many independent vendor relationships with third parties who
may or could have access to our confidential information. The size and complexity of our and our vendors’ systems make such
systems potentially vulnerable to service interruptions. The size and complexity of our and our vendors’ systems and the
large amounts of confidential information that is present on them also makes them potentially vulnerable to security breaches
from inadvertent or intentional actions by our employees, our partners, our vendors or other third parties, or from attacks by
malicious third parties.
The Company and its
vendors’ information technology operations are spread across multiple, sometimes inconsistent platforms, which pose difficulties
in maintaining data integrity across systems. The ever-increasing use and evolution of technology, including cloud-based computing,
creates opportunities for the unintentional or improper dissemination or destruction of confidential information stored in the
Company’s systems.
Any breach of our
security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade
secrets, proprietary information or other confidential information, whether as a result of theft, hacking, fraud, trickery or
other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology
or information and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure
of confidential information could result in financial, legal, business and reputational harm to our company and could have a material
adverse effect on our business, financial condition, results of operations, cash flows and stock price.
We may experience pricing pressure
on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and
future profitability.
We may experience
downward pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would
reduce our revenue and future profitability. Recent events have resulted in increased public and governmental scrutiny of the
cost of drugs, especially in connection with price increases following companies’ acquisition of the rights to certain drug
products. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information about
drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to
drug-price increases and pricing practices. Our revenue and future profitability could be negatively affected if these inquiries
were to result in legislative or regulatory proposals that limit our ability to increase the prices of our products.
In addition, in September
2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to justify price increases
of more than 10% in a 12-month period, and a large number of individual States have introduced legislation aimed at drug pricing
regulation, transparency or both. While this proposed legislation has not been enacted into law to date, our revenue and future
profitability could be negatively affected by the passage of this law or similar federal or state legislation. Furthermore, pressure
from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could
result in downward pressure on the prices of our products in the future.
We may not have and may be unable to
obtain or maintain adequate insurance coverage to cover all potential liabilities.
We may not have and
may be unable to obtain or maintain in the future insurance, on acceptable terms, that provide adequate coverage against potential
liabilities or other losses, such as the cost of a recall or defense against claims, if any claim is brought against us, for any
reason, regardless of the merits, success or failure of such claim. In the past year, as a result of product liability and securities
litigation in the general marketplace, and a threatened claim of action against us in relation to the shareholder vote conducted
in December 2019, our insurance premiums have increased significantly, while also providing no greater, and in most cases, lower
levels of coverage. The significant premium increases experienced were prior to, and accordingly did not consider, the impact
of the COVID-19 global pandemic on the legal and litigation environment in which we and all other companies operate.
The amount of our
insurance coverage is accordingly limited by our financial resources and greatly impacted by the significant premium increases
of the past year and reasonably expected further increases in the near to mid-term due to the global pandemic. Furthermore, even
where claims are submitted to insurance carriers for defenses and indemnity that are within coverage limits, there can be no assurance
that such claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable to provide
reimbursement consistent with coverage maintained.
Any failure by us,
to obtain sufficient insurance coverage, with reimbursement of claims being provided and generate sufficient cash flow, if needed,
above insurance coverage, to pay amounts due in relation to potential claims, will have a material adverse effect on our business,
financial condition, results of operations, cash flow and ability to operate as a going concern.
Impact
of Federal Income Tax Reform
On December 22, 2017,
President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”), that significantly changes the Internal Revenue
Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction
of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest
expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses
to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings
at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions
for depreciation expense over time, and modifying or repealing many business deductions and credits. Any federal net operating
loss carryovers created in 2018 and thereafter will be carried forward indefinitely pursuant to the TCJA.
The changes described
herein could, individually or in aggregate, increase our future effective tax rate and have a material adverse effect on our business,
financial condition, results of operations, cash flows and stock price.
In addition, prospective
or retroactive regulatory and administrative guidance relating to the TCJA could adversely impact our business and current or
future projections of cash taxes.
Risk Related to Our Common Stock
Our stock price has been volatile and
may fluctuate in the future.
The market price for
the publicly traded stock of pharmaceutical companies is generally characterized by high volatility. There has been significant
volatility in the market prices for our Common Stock. For the twelve months ended March 31, 2020, the closing sale price on the
OTC Bulletin Board (“OTC-BB”) of our Common Stock fluctuated from a high of $0.1410 per share to a low of $0.033
per share. The price per share of our Common Stock may not exceed or even remain at current levels in the future. The market price
of our Common Stock may be affected by a number of factors, including, without limitation:
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Results of our clinical trials;
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Approval or disapproval of our ANDAs or NDAs;
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Announcements of innovations, new products, or new patents by
us or by our competitors;
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Announcements of other material events;
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Governmental regulation;
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Patent or proprietary rights developments;
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Proxy contests or litigation;
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News regarding the efficacy of, safety of or demand for drugs
or drug technologies;
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Economic and market conditions, generally and related to the
pharmaceutical industry;
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Healthcare legislation;
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Changes in third-party reimbursement policies for drugs; and
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Fluctuations in our operating results.
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The sale or issuance of our common
stock to Lincoln Park or upon conversion of outstanding preferred stock or exercise of outstanding warrants and options may cause
dilution and the sale of the shares of common stock acquired by Lincoln Park or the issuance of shares upon conversion or exercise
of outstanding preferred stock and warrants, or the perception that such sales and issuances may occur, could cause the price
of our common stock to fall.
On May 1, 2017, we
entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $40,000,000
of our common stock. Concurrently with the execution of the Purchase Agreement, we issued 5,540,550 shares of our common stock
to Lincoln Park as an initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement. Furthermore,
for each additional purchase by Lincoln Park, additional commitment shares in commensurate amounts up to a total of 5,540,550
shares will be issued based upon the relative proportion of the aggregate amount of $40,000,000 purchased by Lincoln Park. The
purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time
to time over a 36-month period commencing after June 5, 2017 and expiring on July 1, 2020. The purchase price for the shares that
we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending on market
liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We generally have
the right to control the timing and amount of any sales of our shares to Lincoln Park. Additional sales of our common stock, if
any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately
purchase all, some, or none of the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it
has acquired shares, Lincoln Park may sell all, some or none of those shares.
In addition, as of
March 31, 2020, there were outstanding shares of preferred stock convertible into approximately 158 million shares of Common Stock
and warrants to purchase an aggregate of approximately 79 million shares of Common Stock at an exercise price of $0.1521 per share,
vested options to purchase an aggregate of approximately 4.9 million shares at a weighted average exercise price of $0.14. Additional
shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding preferred stock and warrants.
As a result of the
above discussed potential issuance of securities, such issuances by us could result in substantial dilution to the interests of
other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park
or pursuant to the conversion or exercise of outstanding shares of preferred stock and warrants, or the anticipation of such issuances,
could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we
might otherwise wish to effect sales.
The issuance of our common stock to
Directors, Employees, and Consultants in payment of fees and salaries cause dilution and the sale of these shares of common stock
so issued, or the perception that sales of these shares so issued may occur, could cause the price of our common stock to fall.
Pursuant to the Company’s
policies relating to the compensation of Directors, 2/3 of all director fees are paid via the issuance of shares of Common Stock,
with such shares being valued at the simple average of the closing price of the Company’s Common Stock for each day in the
period for which the director fees were incurred. In addition, members of the Company’s management, certain employees and
consultants receive a portion of their salaries or compensation via the issuance of shares Common Stock, with such shares being
valued by the same method as that used for the shares issued in payment of director fees.
The issuance of these
shares is dilutive to holders of our Common Stock, and the subsequent sale of these shares, or the perception that the sale of
these shares may occur, could cause the price of our common stock to fall.
Raising of additional funding through
sales of our securities could cause existing holders of our Common Stock to experience substantial dilution.
Any additional financing
that involves the further sale of our securities could cause existing holders of our Common Stock to experience substantial dilution.
On the other hand, if we incurred debt, we would be subject to risks associated with indebtedness, including the risk that interest
rates might fluctuate, and cash flow would be insufficient to pay principal and interest on such indebtedness.
The issuance of additional shares of
our Common Stock or our preferred stock could make a change of control more difficult to achieve.
The issuance of additional
shares of our Common Stock, including those shares issued pursuant to conversion of convertible preferred shares, or the issuance
of shares of an additional series of preferred stock could be used to make a change of control of us more difficult and expensive.
Under certain circumstances, such shares could be used to create impediments to, or frustrate persons seeking to cause, a takeover
or to gain control of us. Such shares could be sold to purchasers who might side with our Board of Directors in opposing a takeover
bid that the Board of Directors determines not to be in the best interests of our shareholders. It might also have the effect
of discouraging an attempt by another person or entity through the acquisition of a substantial number of shares of our Common
Stock to acquire control of us with a view to consummating a merger, sale of all or part of our assets, or a similar transaction,
since the issuance of new shares could be used to dilute the stock ownership of such person or entity.
Provisions of our Articles of Incorporation
and By-Laws could defer a change of our Management which could discourage, or delay offers to acquire us.
Provisions of our
Articles of Incorporation and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders
to remove existing management and might discourage a third party from offering to acquire us, even if a change in control or in
Management would be beneficial to our shareholders. For example, as discussed above, our Articles of Incorporation allows us to
issue shares of preferred stock without any vote or further action by our shareholders. Our Board of Directors has the authority
to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to
issue preferred stock without further shareholder approval. As a result, our Board of Directors could authorize the issuance of
a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive
dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares,
together with a premium, prior to the redemption of our common stock. In this regard, on November 15, 2013, we entered into a
Shareholder Rights Plan and, under the Rights Plan, our Board of Directors declared a dividend distribution of one Right for each
outstanding share of our common stock and one right for each share of Common Stock into which any of our outstanding Preferred
Stock is convertible, to shareholders of record at the close of business on that date. Each Right entitles the registered holder
to purchase from us one “Unit” consisting of one one-millionth (1/1,000,000) of a share of Series H Junior Participating
preferred stock, at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15, 2023,
the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer,
the Rights Plan’s the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable
to him pursuant to his employment agreement and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors
into three classes.
There are inherent uncertainties involved
in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any future changes
in estimates, judgments and assumptions used or necessary revisions to prior estimates, judgments or assumptions could lead to
a restatement of our results.
The consolidated financial
statements included in this Annual Report on Form 10-K are prepared in accordance with GAAP. This involves making estimates, judgments
and assumptions that affect reported amounts of assets (including intangible assets), liabilities, mezzanine equity, stockholders’
equity, operating revenues, costs of sales, operating expenses, other income, and other expenses. Estimates, judgments, and assumptions
are inherently subject to change in the future and any necessary revisions to prior estimates, judgments or assumptions could
lead to a restatement. Any such changes could result in corresponding changes to the amounts of assets (including goodwill and
other intangible assets), liabilities, mezzanine equity, stockholders’ equity, operating revenues, costs of sales, operating
expenses, other income and other expenses.
Our Common Stock is considered a “penny
stock”. The application of the “penny stock” rules to our Common Stock could limit the trading and liquidity
of our Common Stock, adversely affect the market price of our Common Stock, and increase the transaction costs to sell shares
of our Common Stock.
Our common stock is
a “low-priced” security or “penny stock” under rules promulgated under the Securities Exchange Act of
1934, as amended. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first
deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in
selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer
must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial
situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer,
obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these
restrictions will likely decrease the willingness of broker-dealers to make a market in our Common Stock, will decrease liquidity
of our Common Stock and will increase transaction costs for sales and purchases of our Common Stock as compared to other securities.
Our Common Stock is quoted on the Over-the-Counter
Bulletin Board. The Over-the-Counter Bulletin Board is a quotation system, not an issuer listing service, market, or exchange,
therefore, buying and selling stock on the Over-the-Counter Bulletin Board is not as efficient as buying and selling stock through
an exchange. As a result, it may be difficult to sell our Common Stock for an optimum trading price or at all.
The Over-the-Counter
Bulletin Board (the “OTCBB”) is a regulated quotation service that displays real-time quotes, last sale prices and
volume limitations in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market
information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available.
The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit
order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting
and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of
our Common Stock at the optimum trading prices.
When fewer shares
of a security are being traded on the OTCBB, volatility of prices may increase, and price movement may outpace the ability to
deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s
orders being executed, and current prices may differ significantly from the price one was quoted by the OTCBB at the time of the
order entry. Orders for OTCBB securities may be cancelled or edited like orders for other securities. All requests to change or
cancel an order must be submitted to, received, and processed by the OTCBB. Due to the manual order processing involved in handling
OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently,
one may not be able to sell shares of Common Stock at the optimum trading prices.
The dealer’s
spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities
on the OTCBB if the Common Stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate
“paper” loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities
bought and sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased
or eliminated.
We have no plans to pay regular dividends
on our ordinary shares or to conduct ordinary share repurchases.
We do not intend to
pay any cash dividends either currently or in the foreseeable future on our ordinary shares. Additionally, we do not intend to
conduct ordinary share repurchases either currently or in the foreseeable future.