UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
THE ANNUAL PERIOD ENDED MARCH 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM _______________ TO
_______________
COMMISSION
FILE NUMBER: 001-15697
ELITE
PHARMACEUTICALS, INC.
|
(Exact
Name of Registrant as Specified in Its Charter) |
NEVADA
|
|
22-3542636 |
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
165
LUDLOW AVENUE
NORTHVALE,
NEW JERSEY
|
|
07647 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(201)
750-2646
|
(Registrant’s
telephone number, including area code)
Securities
Registered pursuant to Section 12(g) of the Act:
|
Title
of each class |
|
Trading
Symbol |
|
Name
of each exchange on which registered |
Common
Stock, par value $0.001 per share |
|
ELTP |
|
OTCQB |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
|
|
Emerging
growth company |
☐ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of Common Stock held by non-affiliates
at September 30, 2020, the last business day of the registrant’s
most recently completed second fiscal quarter was $56,138,409.
The number of shares of the registrant’s Common Stock outstanding
as of June 7, 2021 was 1,009,176,752.
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K and the documents incorporated herein
contain “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the “Securities
Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from
any future results, performance or achievements expressed or
implied by such forward-looking statements. When used in this
report, statements that are not statements of current or historical
fact are forward-looking statements, and include, without
limitation, estimated future results of operations, estimates of
future revenues, future expenses, future net income and future net
income per share, as well as statements regarding future financing
activities, the impact of the novel strain of coronavirus referred
to as COVID-19 on the health and welfare of our employees and on
our business, including any response to COVID-19 such as
anticipated return to historical purchasing decisions by customers,
the economic impact of COVID-19, changes in consumer spending,
decisions to engage in certain medical procedures, future
governmental orders that could impact our operations and the
ability of our manufacturing facilities and suppliers to fulfill
their obligations to us, and any other statements that refer to our
expected, estimated or anticipated future results. Without limiting
the foregoing, the words “plan”, “intend”, “may,” “will,” “expect,”
“believe”, “could,” “would”, “continue”, “pursue”, “anticipate,”
“estimate,” “forecast”, “contemplate”, “envisage”, “project”, or
“continue” or the negative other variations thereof, or similar
expressions or other variations or comparable terminology are
intended to identify such forward-looking statements. All
statements other than statements of historical fact included in
this report regarding our financial position, business strategy and
plans or objectives for future operations are forward-looking
statements. Without limiting the broader description of
forward-looking statements above, we specifically note, without
limitation, that statements regarding the preliminary nature of the
clinical program results and the potential for further product
development, that involve known and unknown risks, delays,
uncertainties and other factors not under our control, the
requirement of substantial future testing, clinical trials,
regulatory reviews and approvals by the Food and Drug
Administration and other regulatory authorities prior and
subsequent to the commercialization of products under development
and those currently related to commercial operations, our ability
to fund all of our activities and our ability to manufacture and
sell any products, gain market acceptance earn a profit from sales
or licenses of any drugs or our ability to discover new drugs in
the future are all forward-looking in nature.
In
addition, because these statements reflect our current views
concerning future events, these forward-looking statements involve
risks and uncertainties including, without limitation, the risks
related to the impact of COVID-19 (such as, without limitation, the
scope and duration of the pandemic and the resulting economic
crisis and levels of unemployment, governmental actions and
restrictive measures implemented in response, material delays and
cancellations of certain medical procedures, potential
manufacturing and supply chain disruptions and other potential
impacts to the business as a result of COVID-19) and the other
risks and uncertainties more fully described under the caption
“Risk Factors” in Part I, Item 1A of this document. These risks and
uncertainties, many of which are outside of our control, and any
other risks and uncertainties that we are not currently able to
predict or identify, individually or in the aggregate, could have a
material adverse effect on our business, financial condition,
results of operations and cash flows and could cause our actual
results to differ materially and adversely from those expressed in
forward-looking statements contained or incorporated by reference
in this document. Additionally, the prolonged impact of COVID-19
could heighten the impact of one or more of such risk
factors.
We
do not undertake any obligation to update our forward-looking
statements after the date of this document for any reason, even if
new information becomes available or other events occur in the
future, except as may be required under applicable securities law.
You are advised to consult any further disclosures we make on
related subjects in our reports filed with the Securities and
Exchange Commission (the “SEC”). Also, please note that in Part 1,
Item 1A, we provide a cautionary discussion of the risks,
uncertainties and possibly inaccurate assumptions relevant to our
business. These are factors that, individually or in the aggregate,
we think could cause our actual results to differ materially from
expected and historical results. We note these factors for
investors as permitted by Section 27A of the Securities Act and
Section 27E of the Exchange Act. You are notified and should
understand that it is not possible to predict or identify all such
factors and consequently should not consider this to be a complete,
all-inclusive discussion of all potential risks or
uncertainties.
Table
of Contents
PART I
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 generic
products, using proprietary know-how and technology. 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 exploiting 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 generic drug products which require ANDAs as well as
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”).
We
believe that our business strategy enables us to reduce its risk by
having a diverse product portfolio that includes 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 |
|
Branded
Product Equivalent |
|
Therapeutic
Category |
|
Launch
Date |
Phentermine
HCl 37.5mg tablets (“Phentermine 37.5mg”) |
|
Adipex-P® |
|
Bariatric |
|
April
2011 |
Phendimetrazine
Tartrate 35mg tablets (“Phendimetrazine 35mg”) |
|
Bontril® |
|
Bariatric |
|
November
2012 |
Phentermine
HCl 15mg and 30mg capsules (“Phentermine 15mg” and “Phentermine
30mg”) |
|
Adipex-P® |
|
Bariatric |
|
April
2013 |
Naltrexone
HCl 50mg tablets (“Naltrexone 50mg”) |
|
Revia® |
|
Pain |
|
September
2013 |
Isradipine
2.5mg and 5mg capsules (“Isradipine 2.5mg” and “Isradipine
5mg”) |
|
n/a |
|
Cardiovascular |
|
January
2015 |
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”) |
|
Roxycodone® |
|
Pain |
|
March
2016 |
Trimipramine
Maleate Immediate Release 25mg, 50mg and 100mg capsules
(“Trimipramine 25mg”, “Trimipramine 50mg”, “Trimipramine
100mg”) |
|
Surmontil® |
|
Antidepressant |
|
May
2017 |
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”) |
|
Adderall® |
|
Central
Nervous System (“CNS”) Stimulant |
|
April
2019 |
Dantrolene
Sodium Capsules 25mg, 50mg and 100mg (“Dantrolene 25mg”,
“Dantrolene 50mg”, Dantrolene 100mg”) |
|
Dantrium® |
|
Muscle
Relaxant |
|
June
2019 |
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”) |
|
Adderall
XR® |
|
Central
Nervous System (“CNS”) Stimulant |
|
March
2020 |
Loxapine
Succinate 5mg, 10mg, 25mg and 50gm capsules (“Loxapine 5mg”,
“Loxapine 10mg”, “Loxapine 25mg”, and Loxapine 50mg”) |
|
Loxapine® |
|
Antipsychotic |
|
May
2021 |
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”. Loxapine
5gm, Loxapine 10mg, Loxapine 25mg and Loxapine 50mg are
collectively and individually referred to as “Loxapine
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
Epic Pharma LLC (“Epic”), on an exclusive basis.
Oxycodone 5mg, Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and
Oxycodone 30mg (“Oxy IR”)
This
product was an Identified IR Product in the Epic Strategic Alliance
Agreement Dated March 18, 2009 (the “Epic Strategic
Alliance”). Methods used by Epic in the manufacture of Oxy IR
were 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. Epic has reported no profit or profit split for this product
since September 2019.
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 Epic, 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.
Loxapine
Capsules
The
approved ANDA for Loxapine was acquired by Elite in 2013. Loxapine
Succinate 5, 10, 25 and 50 mg are currently commercial products
being manufactured by Elite at the Northvale Facility, launched
commercially in May 2021 and distributed by Burel Pharmaceuticals,
Inc, an affiliate of Prasco, LLC (“Burel”), 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 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
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, 2021 (“Fiscal 2021”) and ANDAs
acquired or approved during the Fiscal 2021. 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.
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. 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 three successive terms, each of five 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 except for the antibiotic tablet product which has been
filed with the FDA and the antibiotic capsule product not yet
filed. These two products remain jointly owned assets of the
parties.
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”). The license for Methadone Tablets was terminated by
mutual agreement in December 2019. The license for Phendimetrazine
Capsules was terminated by mutual agreement in February 2020. The
licenses for Trimipramine Capsules and Isradipine Capsules expired
in May 2021.
During
the term of the Glenmark Alliance, Glenmark had exclusive marketing
rights to the following products: Methadone Tablets, Trimipramine
Capsules and Isradipine Capsules. Glenmark also had semi-exclusive
marketing rights to Phendimetrazine Tablets. All products included
in the Glenmark Alliance were manufactured by Elite. In addition to
the purchase prices for the products, Elite also received license
fees in excess of 50% of gross profits, with such being defined as
net sales less the price paid to Elite for the products,
distribution fees of less than 10% and shipping costs.
Marketing License with Epic Pharma LLC
On
November 21, 2020 we entered into a license, manufacturing and
supply agreement with Epic Pharma LLC (“Epic”) to market the
two Elite generic products described below in the United States
(the “Epic Pharma License”).
Beginning
on May 23, 2021 and continuing until the agreement terminates, Epic
has exclusive marketing rights to Trimipramine Capsules and
Isradipine Capsules. The products are manufactured by Elite for
Epic on a cost plus basis. In addition to the purchase prices for
the products, Elite also receives license fees of 50% of gross
profits or greater, with such being defined as net sales less the
price paid to Elite for the products, distribution fees of less
than 10% and shipping costs. The initial term of the agreement is
three (3) years from the execution of the agreement. Epic has the
option to extend the agreement for an additional two (2) years if
certain license fee targets are met.
Marketing License with Prasco, LLC and Burel Pharmaceuticals,
Inc.
On
February 14, 2020, and as amended on July 30, 2020, the Company
entered into a license, manufacturing and supply agreement with
Prasco, LLC and its affiliate Burel Pharmaceuticals, Inc.
(“Burel”) to market generic Loxapine Succinate capsules in
the United States (the “Burel License”). Burel sales for the
product began May 2021.
Under
the agreement, Burel has exclusive marketing rights to Loxapine.
The product is manufactured by Elite, and the Company receives
manufacturing fees and license fees of 50% of gross profits or
greater, with such being defined as net sales less the price paid
to Elite for the products, distribution fees of less than 10% and
shipping costs. The term of the agreement is three (3) years from
the execution date of the agreement and will automatically renew
for one (1) year periods unless one of the parties gives prior
written notice.
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, 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.
Please
also note that 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.
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.
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.
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 |
|
EXPIRATION
DATE |
U.S.
patent 8,182,836 |
|
March
2024 |
U.S.
patent 8,425,933 |
|
March
2025 |
U.S.
patent 8,703,186 |
|
March
2025 |
Canadian
patent 2,521,655 |
|
April
2023 |
Canadian
patent 2,541,371 |
|
April
2024 |
U.S.
patent 9,056,054 |
|
June
2030 |
U.S.
patent 10213388 |
|
June
2030 |
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.
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.
Other
Business Factors and Details
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, wastewater 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:
|
● |
greater
possibility for disruption due to transportation or communication
problems; |
|
● |
the
relative instability of some foreign governments and
economies; |
|
● |
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, |
|
● |
uncertainty
regarding recourse to a dependable legal system for the enforcement
of contracts and other rights. |
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 customers, suppliers and other third parties
for core business aspects”
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, Epic Pharma, Burel Pharmaceuticals 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 are dependent on a small number of customers, suppliers
and other third parties for core business aspects”
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, 2021 and 2020 revenue from our ANDA segment were $25.2 million
and $17.0 million, respectively. For the years ended March 31, 2020
and 2019 revenue from our NDA segment were $0.2 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 7, 2021, 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.
ITEM 1A. RISK
FACTORS
An
investment in the Company’s securities 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.
Risk
Factor Summary
The
following is a summary of the risk factors contained in this Annual
Report on Form 10-K that could adversely affect our business,
ability to operate, financial condition, results of operation,
equity and cash flows. This summary does not address all of the
risks that we face and is qualified in its entirety by reference to
the more detailed descriptions included below. In addition to this
summary, we strongly encourage you to carefully review the full
risk factors in their entirety.
Business
Related Risks
|
● |
The
pharmaceutical industry is highly competitive. |
|
● |
Global
pandemic and natural disasters. |
|
● |
Interruptions
in operations at our sole facility could have a material adverse
effect on our business. |
|
● |
We
are dependent on a small number of customers, suppliers and other
third parties for core business aspects. |
|
● |
We
may sell, withdraw or discontinue manufacture of certain
products. |
|
● |
We
may fail to successfully identify, develop, complete clinical
trials, secure regulatory approvals and commercialize new
products. |
|
● |
Our
operations could be disrupted by failure of our information systems
or cyber-attacks. |
|
● |
Delays
in product development may result in failure to achieve adequate
return on investment. |
|
● |
Our
business is dependent on market perceptions, social and political
pressures. |
|
● |
Unstable
economic conditions may adversely affect our business. |
|
● |
We
depend on qualified scientific and technical personnel and our
ability to attract and retained such. |
|
● |
Unsuccessful
collaboration or licensing arrangements could limit revenues and
product development. |
Financial
and Liquidity Related Risks
|
● |
We
have a relatively limited operating history and our operating
results could fluctuate significantly. |
|
● |
Our
ability to fund operations is uncertain and we may require
additional financing to meet objectives. |
|
● |
We
have substantial indebtedness which may adversely affect our
financial condition. |
|
● |
There
is a risk impairment of significant intangible assets on our
balance sheet. |
|
● |
GAAP
requires estimates, judgements and assumptions which inherently
contain uncertainties. |
Legal
and Regulatory Risks
|
● |
The
pharmaceutical industry is heavily regulated which creates
uncertainty and substantial compliance costs. |
|
● |
Decreases
in the degree to which individuals are covered by healthcare
insurance and levels of third party reimbursement could result in
decreased use of our products and lower prices. |
|
● |
Our
business may be adversely affected by legislation or healthcare
regulatory reform and initiatives. |
|
● |
Use
of generics may be limited through legislative, regulatory or
efforts of pharma companies. |
|
● |
New
tariffs and evolving trade policy between the US and other
countries may adversely affect our business. |
|
● |
The
DEA could limit the availability of active ingredients used in many
of our products. |
|
● |
Changes
in FDA approval requirements may prevent or delay approval of new
products. |
|
● |
We
received a CRL from the FDA indicating that the
SequestOxTM NDA is not ready for approval. |
|
● |
Regulatory
factors may cause us to be unable to manufacture products or face
interruptions in our manufacturing process. |
|
● |
Agreements
between branded pharmaceutical companies and generic pharmaceutical
companies are facing increased government scrutiny in the United
States and Internationally. |
Litigation
and Liability Related Risks
|
● |
We
may not be able to obtain or maintain adequate insurance
coverages. |
|
● |
Litigation,
product liability claims, product recalls, government
investigations and other significant legal proceedings are common
in the pharmaceutical industry. |
|
● |
Our
products contain narcotic ingredients which may subject us to
increased litigation risk and regulation. |
|
● |
Public
concern over abuse of opioids has negatively affected our
business. |
|
● |
Illegal
distribution and third party sale of counterfeit versions of our
products could have a detrimental effect on our reputation and
business. |
Structural
and Organizational Risks
|
● |
We
have identified material weaknesses in internal controls in prior
years. |
|
● |
Provisions
of our Articles of Incorporation could deter a change of management
and discourage offers to acquire us. |
Intellectual
Property Related Risks
|
● |
Our
ability to protect intellectual property rights and successfully
defend third party allegations of intellectual property
infringement is vital to our business and uncertain. |
Risks
Related to our Common Shares
|
● |
Dilution
from issuance of shares to Lincoln Park, Directors, Employees,
Consultants or upon exercise of warrants and options or the
perception that dilution may occur could cause the price per share
of common stock to fall. |
|
● |
Our
common stock is a penny stock, quoted on the OTC bulletin board,
with rules in place that could limit trading and liquidity of our
shares, increased transaction costs that could adversely affect our
price per share. |
|
● |
Shareholder
activism could negatively affect us. |
|
● |
Our
stock price has been volatile. |
|
● |
Capital
raises through sales of securities may cause substantial dilution
to existing shareholders. |
|
● |
Issuance
of shares of common or preferred stock could make achieving a
change of control more difficult. |
|
● |
We
have no plans to pay regular dividends or conduct ordinary share
purchases. |
Business
Related Risks
The pharmaceutical industry is highly
competitive.
The
pharmaceutical industry is highly competitive and subject to rapid
and significant technological change, and we may be unable to
compete effectively, which could impair our ability to implement
our business model. 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:
|
● |
obtaining
new patents on drugs whose original patent protection is about to
expire; |
|
● |
filing
patent applications that are more complex and costly to
challenge; |
|
● |
filing
suits for patent infringement that automatically delay approval
from the FDA; |
|
● |
filing
citizens’ petitions with the FDA contesting approval of the generic
versions of products due to alleged health and safety
issues; |
|
● |
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; |
|
● |
changing
product claims and product labeling; |
|
● |
developing
and marketing as over-the-counter products those branded products
which are about to face generic competition; and, |
|
● |
making
arrangements with managed care companies and insurers to reduce the
economic incentives to purchase generic
pharmaceuticals. |
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.
In
addition, 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 and 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.
Furthermore,
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.
The
existence and occurrence of any of the above could have a material
adverse effect on our business, financial condition, results of
operations, cash flow, ability to operate and stock
price.
Global pandemic and natural disasters.
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,
the COVID-19 pandemic 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 with the stated objective being 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, installed
improved air flow and filtration at the Northvale Facility, as well
as social distancing, modified schedules, shift rotation, daily
temperature checks, multiple hand sanitation stations 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 higher levels of 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 2021, 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, 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.
Interruptions in operations at our sole facility could have a
material adverse effect 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.
Furthermore,
all of our manufacturing operations are conducted at the Northvale
Facility and any delays or unanticipated expenses in connection
with the operation at the Northvale Facility, resulting in 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 are dependent on a small number of customers, suppliers and
other third parties for core business aspects.
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:
|
● |
greater
possibility for disruption due to transportation or communication
problems; |
|
● |
the
relative instability of some foreign governments and
economies; |
|
● |
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, |
|
● |
uncertainty
regarding recourse to a dependable legal system for the enforcement
of contracts and other rights. |
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
also 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, Epic
Pharma, Burel 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.
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.
Furthermore,
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.
Furthermore,
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.
We may sell, withdraw or discontinue manufacture of certain
products.
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.
In
addition, 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, 2020 through
September 30, 2021, the annual fee for large sized ANDA holders was
approximately $0.9 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.
All
of the foregoing could have a material adverse effect on our
business, results of operations, financial condition, cash flows
and ability to operate.
We may fail to successfully identify, develop and commercialize new
products.
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.
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:
|
● |
ineffectiveness
of our product candidate or perceptions by physicians that the
product candidate is not safe or effective for a particular
indication; |
|
● |
inability
to manufacture sufficient quantities of the product candidate for
use in clinical trials; |
|
● |
delay
or failure in obtaining approval of our clinical trial protocols
from the FDA or institutional review boards; |
|
● |
slower
than expected rate of patient recruitment and
enrollment; |
|
● |
inability
to adequately follow and monitor patients after
treatment; |
|
● |
difficulty
in managing multiple clinical sites; |
|
● |
unforeseen
safety issues; |
|
● |
government
or regulatory delays; and, |
|
● |
clinical
trial costs that are greater than we currently
anticipate. |
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.
Our
ability to sustain current operations, engender business growth,
achieve current and future revenues and profitability,
significantly depends on our ability to successfully identify,
develop, obtain regulatory approval, 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:
|
● |
The
timely filing of any NDA, ANDA or other regulatory submission
applicable to our product candidates; |
|
● |
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; |
|
● |
The
effectiveness, ease of use and safety of our products as compared
to existing products; |
|
● |
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; |
|
● |
The
cost of our product compared to alternative products and the
pricing and commercialization strategies of our
competitors; |
|
● |
The
success of our launch and marketing efforts; |
|
● |
Adverse
publicity about us, our products, our competitors and their
products or the industry as a whole or favorable publicity about
competitors; |
|
● |
The
advent of new and innovative alternative products; and |
|
● |
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. |
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
SequestOxTM 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 SequestOxTM, 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 SequestOxTM, which has not received
marketing approval from the FDA, for which continued development
has been paused and 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.
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 operations could be disrupted by failure of our information
systems or cyber-attacks.
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.
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.
Delays in product development may result in failure to achieve
adequate return on investment.
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.
There
are also risks and uncertainties inherent in conducting clinical
trials could delay or prevent the development and commercialization
of our own branded products. 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:
|
● |
Delays
in patient enrolment, and variability in the number and types of
patients available for clinical trials; |
|
● |
Regulators
or institutional review boards may not allow us to commence or
continue a clinical trial; |
|
● |
Our
inability, or the inability of our partners, if any, to manufacture
or obtain from third parties those materials required to complete
clinical trials; |
|
● |
Delays
or failure in reaching agreement on acceptable clinical trial
contracts or clinical trial protocols with prospective clinical
trial sites; |
|
● |
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; |
|
● |
Difficulty
in maintaining contact with patients after treatment commences,
resulting in incomplete data |
|
● |
Poor
effectiveness of product candidates during clinical
trials; |
|
● |
Safety
issues, including adverse events associated with product
candidates; |
|
● |
Failure
of patients to complete clinical trials due to adverse side
effects, dissatisfaction with the product candidate, or other
reasons; |
|
● |
Governmental
or regulatory delays or changes in regulatory requirements, policy,
and guidelines; and, |
|
● |
Varying
interpretation of data by the FDA or other relevant regulatory
authorities. |
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.
Our business is dependent on market perceptions, social and
political pressures.
Market
acceptance of our products among physicians, patients, health care
payors and the medical community, is a key component of commercial
success and if such is not achieved, 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:
|
● |
acceptable
evidence of safety and efficacy; |
|
● |
relative
convenience and ease of administration; |
|
● |
the
prevalence and severity of any adverse side effects; |
|
● |
availability
of alternative treatments; |
|
● |
pricing
and cost effectiveness; |
|
● |
effectiveness
of sales and marketing strategies; and, |
|
● |
ability
to obtain sufficient third-party coverage or
reimbursement. |
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:
|
● |
the
availability of alternative products from our
competitors; |
|
● |
the
prices of our products relative to those of our
competitors; |
|
● |
the
timing of our market entry; |
|
● |
the
ability to market our products effectively at the retail
level; |
|
● |
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, |
|
● |
the
acceptance of our products by government and private
formularies. |
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.
We
may also experience downward 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.
Furthermore,
public concern over the abuse of opioid medications, including
increased legal and regulatory action, could also 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, 2021 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, 2021, 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 cost-prohibitive
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.
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.
Any
or all of the above could result in a material adverse effect on
our business, financial condition, results of operations, cash
flow, ability to operate and stock price.
Unstable economic conditions may adversely affect our
business.
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.
We depend on qualified scientific and technical personnel and our
ability to attract and retain such personnel.
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, should we reinstate development and achieve
commercialization of this product. 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.
Unsuccessful collaboration or licensing arrangements could limit
revenues and product development.
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:
|
● |
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; |
|
● |
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; |
|
● |
expected
revenue might not be generated because milestones may not be
achieved, and product candidates may not be developed; |
|
● |
collaborators
and licensees could independently develop, or develop with third
parties, products that could compete with our future
products; |
|
● |
the
terms of our contracts with current or future collaborators and
licensees may not be favorable to us in the future; |
|
● |
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; |
|
● |
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, |
|
● |
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. |
Any
or all of the above could result in a material adverse effect on
our business, financial condition, results of operations, cash
flow, ability to operate and stock price.
Financial
and Liquidity Risks
We have a relatively limited operating history and our 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:
|
● |
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; |
|
● |
Timing
of approval of applications filed with the FDA; |
|
● |
Timing
of process validation, product launches and market acceptance of
products launched; |
|
● |
Changes
in the amounts spent to research, develop, acquire, license or
promote new and existing products; |
|
● |
Results
of clinical trial programs; |
|
● |
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; |
|
● |
Introduction
of new products by others that render our products obsolete or
non-competitive; |
|
● |
The
ability to maintain selling prices and gross margin on our
products; |
|
● |
Mix
of product manufactured and sold due to each product having
different gross margins; |
|
● |
The
cost and outcome of litigation, in the event that such occurs in
relation to, without limitation, intellectual property issues,
regulatory or other matters; |
|
● |
The
ability to comply with complex and numerous governmental
regulations and regulatory authorities which oversee and regulate
many aspects of our business and operations; |
|
● |
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; |
|
● |
Increases
in the cost of raw materials contained within our
products; |
|
● |
Manufacturing
and supply interruptions, including product rejections or recalls
due to failure to comply with manufacturing
specifications; |
|
● |
Timing
of revenue recognition relating to our licensing and other
agreements; |
|
● |
The
ability to avoid infringing the intellectual property of
others; |
|
● |
The
ability to protect our intellectual property from being acquired by
other entities; |
|
● |
Our
ability to manage growth and integrate acquired products and assets
successfully; and |
|
● |
The
addition or loss of customers. |
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).
In
addition, although we have been in operation since 1990, we have a
relatively short operating history, have only achieved
profitability for the first time during the fiscal year ended March
31, 2021 and have limited financial data upon which you may
evaluate our business and prospects. There can be no assurances of
our ability to sustain current profitability and in certain years
prior to the year ended March 31, 2021, the auditor’s opinion on
our financials 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.
Furthermore, 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 and there
can be no assurances of continued profitability subsequent to the
current fiscal year. Some of these risks relate to our potential
inability to:
|
● |
develop new products; |
|
● |
obtain regulatory approval of our
products; |
|
● |
manage our growth, control expenditures and align
costs with revenues; |
|
● |
attract, retain, and motivate qualified
personnel; and respond to competitive developments;
and, |
|
● |
Sustain operations during a global pandemic or
similar situation, such as the COVID-19 global pandemic first
identified in 2020. |
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.
Our ability to fund operations is uncertain and we may
require additional financing to meet objectives.
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. Amounts
available under the equity line with Lincoln Park have a strong and
direct correlation to the Company’s publicly traded price per share
and volumes. There can be no assurances of our traded price per
share and volumes being at sufficient levels to provide adequate
funding from the equity line with Lincoln Park. In addition, there
can be no assurances of our ability to secure equipment financing,
resulting in an increased risk of our inability to achieve critical
or necessary facility upgrades.
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:
|
● |
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; |
|
● |
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; |
|
● |
A
limitation in our ability to attract and retain key
personnel; |
|
● |
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;
and, |
|
● |
An
overall inability to fund our operations and liquidity
needs. |
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 also will likely 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, 2021, we had cash on hand of approximately $3.2
million and a working capital surplus of $6.8 million, and, for the
fiscal year ended March 31, 2021, we had profits from operations
totaling $2.5 million, net other income totaling $3.0 million and
net income of $5.5 million.
On July 8, 2020, we entered into another purchase agreement (the
“2020 LPC Purchase Agreement”), together with a registration
rights agreement (the “2020 LPC Registration Rights
Agreement”), with Lincoln Park. Under the terms and subject to
the conditions of the 2020 LPC Purchase Agreement, we have the
right to sell to and Lincoln Park is obligated to purchase up to
$25 million in shares of our common stock, subject to certain
limitations, from time to time, over the 36-month period commencing
on July 27, 2020 and expiring on August 1, 2023.
While growth in our current generic product line, consisting of
Phentermine Tablets, Phentermine Capsules, Phendimetrazine Tablets,
Naltrexone Tablets, Isradipine Capsules, Trimipramine Capsules,
Amphetamine IR Tablets, Amphetamine ER Capsules, Dantrolene
Capsules, and Loxapine Capsules combined with manufacturing, profit
split and royalty revenues earned pursuant to the Lannett Alliance,
the Precision Dose License Agreement, the Burel License Agreement
and the Epic License Agreement, and successful commercialization of
other products in our product development pipeline, may lead to
sustained profitability, there can be no assurances of such.
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 “Global pandemic and
natural disasters”.
We have substantial indebtedness which may adversely affect
our financial condition.
We currently have substantial indebtedness. Total liabilities as of
March 31, 2021, were $10.1 million, with such amount including,
without limitation, $2.4 million in various loans, leases and bonds
payable, $2.3 million in derivative liabilities, and $5.3 million
in current payables and accruals. The consequences of this
substantial indebtedness could include:
|
● |
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; |
|
● |
Exposure to the risk of increased interest
rates; |
|
● |
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; |
|
● |
A
limitation in our flexibility in planning for, or reacting to,
changes in our business and the industry in which we
operate; |
|
● |
Our
being at a competitive disadvantage as compared to competitors with
less indebtedness; and |
|
● |
A
limitation in our ability to borrow additional funds that may be
needed to operate and expand our business. |
In addition, 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.
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”.
There is a risk impairment of significant intangible assets
on our balance sheet.
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, 2021, intangible assets were approximately $6.6
million, or approximately 25% 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.
GAAP requires estimates, judgements and assumptions which
inherently contain uncertainties.
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.
Legal and Regulatory Risks
The pharmaceutical industry is heavily regulated which
creates uncertainty and substantial compliance costs.
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.
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.
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 2021, 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.
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.
Decreases in the degree to which individuals are covered by
healthcare insurance and levels of third party reimbursement could
result in decreased use of our products and lower
prices.
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. The cases were
argued before the U.S. Supreme Court in November 2020 and a
decision is expected during the current Supreme Court term in 2021.
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.
Furthermore, 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. For example, government agencies or
third-party payers could attempt to reduce reimbursement for
physician administered products through their interpretation of
complex government price reporting obligations and payment and
reimbursement coding rules, and could attempt to reduce
reimbursement for separate physician administered products that
share an active ingredient by requiring the blending of sales and
pricing information in the same payment and reimbursement code.
There have been several recent U.S. Congressional inquiries,
hearings and proposed and enacted federal and state legislation and
rules, as well as executive orders, designed to, among other
things: (i) reduce or limit the prices of drugs and make them more
affordable for patients, such as by tying the prices that Medicare
reimburses for physician administered drugs to the prices of drugs
in other countries; (ii) reform the structure and financing of
Medicare Part D pharmaceutical benefits, including through
increasing manufacturer contributions to offset Medicare
beneficiary costs; (iii) bring more transparency to how
manufacturers price their medicines; (iv) enable the government to
directly negotiate prices for drugs covered under Medicare; (v)
revise rules associated with the calculation of Medicaid Average
Manufacturer Price and Best Price, including with regard to the
manner in which pharmaceutical manufacturers may provide copayment
assistance to patients and the identification of “line extension”
drugs, which affect the amount of rebates that manufacturers must
pay on prescription drugs under Medicaid; (vi) eliminate
anti-kickback statute discount safe harbor protection for
manufacturer rebate arrangements with Medicare Part D Plan Sponsors
and pharmacy benefit managers on behalf of Part D Plan Sponsors;
(vii) create new anti-kickback statute safe harbors applicable to
certain point-of-sale discounts to patients and fixed-fee
administrative fee payment arrangements with pharmacy benefit
managers; and (viii) and facilitate the importation of certain
lower-cost drugs from other countries. In addition, state
legislatures have enacted legislation and regulations designed to
control pharmaceutical and biological product pricing, including
restrictions on pricing or reimbursement at the state government
level, marketing cost disclosure and transparency measures, and, in
some cases, policies to encourage importation of drugs from other
countries (subject to federal approval) and bulk purchasing,
including the National Medicaid Pooling Initiative. While we cannot
predict the final form of pending legislative, regulatory and/or
administrative measures, some of the pending and enacted
legislative proposals or executive rulemaking, such as those
incorporating International Pricing Index or Most-Favored-Nation
models, could significantly reduce the coverage and levels of
reimbursement for products.
The unavailability of, or reduction in, the reimbursement of our
products could have a material adverse effect on our business,
ability to operate as a going concern, financial condition, results
of operations and cash flow.
Our business may be adversely affected by legislation or
healthcare regulatory reform and initiatives.
Our business and financial condition may be adversely affected by
legislation or regulatory reform of the healthcare system in the
United States. We cannot predict with any certainty how existing
laws may be applied or how laws or legal standards may change in
the future. Current or future legislation, whether state or
federal, or in any of the non-U.S. jurisdictions with authority
over our suppliers, customers or operations, may have a material
effect on our business, ability to operate, financial condition,
results of operations and cash flows.
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). The
Stewardship Act is a component in the degradation of commercial
prospects of SequestOxTM, which are significant factor
in the decision to pause development of this product. 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.
Providing further impediment to the commercial viability of
SequestOxTM, New York State, in April 2019 enacted an
excise tax on the first sale of every opioid unit in New York.
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 not reasonably unlikely 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.
Extensive industry regulation has had and will continue to have, a
significant impact on business in the areas of cost of goods,
product development and our 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.
Furthermore, health care initiatives and other third-party payor
cost-containment pressures have caused 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, Burel, Epic Pharma
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.
Recently enacted state laws could also affect the pricing of our
products and could reduce 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.
Use of generics may be limited through legislative,
regulatory or efforts of pharma companies.
Many pharmaceutical companies increasingly have used state and
federal legislative and regulatory means to delay generic
competition, which, if successful, could limit the use of generic
pharmaceuticals. These efforts have included:
|
● |
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; |
|
● |
Using
the Citizen Petition process (for example, under 21 C.F.R. s.
10.30) to request amendments to FDA standards; |
|
● |
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 |
|
● |
Engaging in state-by-state initiatives to enact
legislation that restricts the substitution of some generic
drugs. |
|
● |
Seeking changes to U.S. Pharmacopeia, an
organization that publishes industry recognized compendia of drug
standards; |
|
● |
Attaching patent extension amendments to
non-related federal legislation; |
|
● |
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; |
|
● |
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; |
|
● |
Filing suits for patent infringement and other
claims that may delay or prevent regulatory approval, manufacture
and/or scale of generic products; and, |
|
● |
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. |
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 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.
New tariffs and evolving trade policy between the US and
other countries may adversely affect our business.
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 uncertainty about the future relationship between
the U.S. and various other countries, including China, with respect
to trade policies, treaties, government regulations and tariffs
under the Biden Administration.
It is unclear to what extent the Biden Administration will continue
to pursue the trade policies of the Trump Administration. The Biden
Administration may seek to impose certain additional restrictions
on international trade, such as increased tariffs on goods imported
into the U.S. Such tariffs could potentially disrupt our existing
supply chains and impose additional costs on our business,
including 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, it could cause us to raise prices for our products,
which may result in the loss of customers. If we are unable to pass
along increased costs to our customers, our margins could be
adversely affected. Additionally, it is possible that further
tariffs may be imposed that could affect imports of APIs and other
materials used in our products, or our business may be adversely
impacted by retaliatory trade measures taken by other countries,
including restricted access to APIs or other materials used in our
products, causing us to raise prices or make changes to our
products. Further, 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. For example, the Trump Administration 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 impose binding commitments on intellectual property, technology
transfer and currency practices. Nevertheless, given the volatility
and uncertainty regarding the scope and duration of these tariffs
and other aspects of U.S. international trade policy, the impact on
our operations and results is uncertain and could be significant.
Further governmental action related to tariffs, additional taxes,
regulatory changes or other retaliatory trade measures could occur
in the future. Any of these factors could have a material adverse
effect on our business, financial condition, results of operations
and cash flows.
The DEA could limit the availability of active ingredients
used in many of our products.
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.
Changes in FDA approval requirements may prevent or delay
approval of new products.
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.
We received a CRL from the FDA indicating that the SequestOx™
NDA is not ready for approval.
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.
Regulatory factors may cause us to be unable to manufacture
products or face interruptions in our manufacturing
process.
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.
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.
Litigation and Liability Related Risks
We may not be able to obtain or maintain adequate insurance
coverages.
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.
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.
Litigation, product liability claims, product recalls,
government investigations and other significant legal proceedings
are common in the pharmaceutical industry.
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.
We also 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.
We are also 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.
Furthermore, 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.
Our products contain narcotic ingredients which may subject
us to increased litigation risk and regulation.
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 be
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.
Public concern over abuse of opioids has negatively affected
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.
Illegal distribution and third party sale of counterfeit
versions of our products could have a detrimental effect on our
reputation and business.
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.
Structural and Organizational Risks
We have identified material weaknesses in internal controls
in prior years.
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, with such remediation also being effective
during this current fiscal year. 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.
Provisions of our Articles of Incorporation could deter a
change of management and discourage 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.
Intellectual Property Related Risks
Our ability to protect intellectual property rights and
successfully defend third party allegations of intellectual
property infringement is vital to our business and
uncertain.
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 six 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.
Furthermore, 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.
Risks Related to our Common Shares
Dilution from issuance of shares to Lincoln Park, Directors,
Employees, Consultants or upon exercise of warrants and options or
the perception that dilution may occur could cause the price per
share of common stock to fall.
On July 8, 2020, we entered into the Purchase Agreement with
Lincoln Park, pursuant to which Lincoln Park has committed to
purchase up to $25,000,000 of our common stock. Concurrently with
the execution of the Purchase Agreement, we issued 5,975,857 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 5,975,857 shares will be issued based upon the
relative proportion of the aggregate amount of $25,000,000
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 July 27, 2020 and expiring on August 1, 2023. 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, 2021, there were outstanding warrants
to purchase an aggregate of approximately 79 million shares of
Common Stock at a cash exercise price of $0.1521 per share, vested
options to purchase an aggregate of approximately 5.2 million
shares at a weighted average cash exercise price of $0.13.
Additional shares of Common Stock may be issuable as a result of
anti-dilution provisions in the outstanding warrants, with such
provisions excluding any shares issued to Lincoln Park from
consideration .
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 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.
Furthermore, 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.
Our common stock is a penny stock, quoted on the OTC bulletin
board, with rules in place that could limit trading and liquidity
of our shares, increased transaction costs that could adversely
affect our price per share.
Our common stock is a “low-priced” security or “penny stock” under
rules promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). 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.
In addition, our Common stock is quoted on the Over-the-Counter
Bulletin Board (the “OTCBB”) which 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.
Shareholder activism could negatively affect us.
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.
Our stock price has been volatile.
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, 2021, the closing sale
price on the OTC Bulletin Board (“OTCBB”) of our Common
Stock fluctuated from a high of $0.10 per share to a low of $0.05
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:
|
● |
Results of our clinical trials; |
|
● |
Approval or disapproval of our ANDAs or
NDAs; |
|
● |
Announcements of innovations, new products, or
new patents by us or by our competitors; |
|
● |
Announcements of other material
events; |
|
● |
Governmental regulation; |
|
● |
Patent or proprietary rights
developments; |
|
● |
Proxy
contests or litigation; |
|
● |
News
regarding the efficacy of, safety of or demand for drugs or drug
technologies; |
|
● |
Economic and market conditions, generally and
related to the pharmaceutical industry; |
|
● |
Healthcare legislation; |
|
● |
Changes in third-party reimbursement policies for
drugs; and |
|
● |
Fluctuations in our operating
results. |
Capital raises through sales of securities may cause
substantial dilution to existing shareholders.
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.
Issuance of shares of common or preferred stock could make
achieving a change of control more difficult.
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.
We have no plans to pay regular dividends or conduct share
purchases.
We do not intend to pay any cash dividends either currently or in
the foreseeable future on our common shares. Additionally, we do
not intend to conduct share repurchases either currently or in the
foreseeable future.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2. PROPERTIES
We own a facility located at 165 Ludlow Avenue, Northvale, New
Jersey (“165 Ludlow”) which contains approximately 15,000
square feet of floor space. This real property and the improvements
thereon are encumbered by a mortgage in favor of the New Jersey
Economic Development Authority (“NJEDA”) as security for a
loan through tax-exempt bonds from the NJEDA to Elite. The mortgage
contains certain customary provisions including, without
limitation, the right of NJEDA to foreclose upon a default by
Elite. The NJEDA has declared the payment of this bond to be in
default (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 are currently using the Facility as a laboratory,
manufacturing, storage, distribution, and office space.
We entered into an operating lease for a portion of a one-story
warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the
“135 Ludlow Ave. lease”). The 135 Ludlow Ave. lease is for
approximately 15,000 square feet of floor space and began on July
1, 2010. During July 2014, we modified the 135 Ludlow Ave. lease in
which the Company was permitted to occupy the entire 35,000 square
feet of floor space in the building (“135 Ludlow Ave. modified
lease”).
The 135 Ludlow Ave. modified lease includes an initial term, which
expires on December 31, 2016 with two tenant renewal options of
five years each, at the sole discretion of the Company. On June 22,
2016, the Company exercised the first of these renewal options,
with such option including a term that begins on January 1, 2017
and expires on December 31, 2021.
The 135 Ludlow Ave. property required significant leasehold
improvements and qualifications, as a prerequisite, for its
intended future use. While manufacturing, packaging, warehousing
and regulatory activities are currently conducted at this location,
additional renovations and construction continue to occur as
required by operations.
165 Ludlow and 135 Ludlow are hereinafter referred to as the
“Facilities” or the “Northvale Facility”.
Properties used in our operation are considered suitable for the
purposes for which they are used, at the time they are placed into
service, and are believed adequate to meet our needs for the
reasonably foreseeable future.
ITEM 3. LEGAL
PROCEEDINGS
In the ordinary course of business, we may be subject to litigation
from time to time. There is no current, pending or, to our
knowledge, threatened litigation or administrative action to which
we are a party or of which our property is the subject (including
litigation or actions involving our officers, directors,
affiliates, or other key personnel, or holders of record or
beneficially of more than 5% of any class of our voting securities,
or any associate of any such party) which in our opinion has, or is
expected to have, a material adverse effect upon our business,
prospects financial condition or operations. A significant increase
in the number of claims or an increase in amounts owing under
successful claims could materially adversely affect our business,
financial condition, results of operations and cash flows.
ITEM 4. MINE SAFETY
DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR COMPANY’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our Common Stock is quoted on the Over-the-Counter Bulletin Board
under the ticker symbol “ELTP”. The following table shows, for the
periods indicated, the high and low bid prices per share of our
Common Stock as by OTC Bulletin Board. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
Quarter Ended |
|
High |
|
|
Low |
|
Fiscal Year
Ending March 31, 2021 |
|
|
|
|
|
|
March 31, 2021 |
|
$ |
0.09 |
|
|
$ |
0.05 |
|
December 31, 2020 |
|
$ |
0.09 |
|
|
$ |
0.05 |
|
September 30, 2020 |
|
$ |
0.09 |
|
|
$ |
0.07 |
|
June 30, 2020 |
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ending March 31, 2020 |
|
|
|
|
|
|
|
|
March 31, 2020 |
|
$ |
0.11 |
|
|
$ |
0.05 |
|
December 31, 2019 |
|
$ |
0.11 |
|
|
$ |
0.08 |
|
September 30, 2019 |
|
$ |
0.14 |
|
|
$ |
0.04 |
|
June 30, 2019 |
|
$ |
0.10 |
|
|
$ |
0.03 |
|
As of June 7, 2021, the last reported sale price of our Common
Stock, as reported by the OTCBB, was $0.60.
Holders
As of June 7, 2021, there were, respectively, approximately 116
holders of record of our Common Stock.
Dividends
We have never paid cash dividends on our Common Stock. We currently
anticipate that we will retain all available funds for use in the
operation and expansion of our business.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table sets forth certain information regarding
Elite’s equity compensation plans as of March 31, 2021:
Plan Category |
|
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
(a) |
|
|
Weighted-
average
exercise
price per share
of outstanding
options,
warrants and
rights
(b) |
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) |
|
Equity compensation plans approved by security
holders (1) |
|
|
— |
|
|
|
— |
|
|
|
2,150,000 |
|
|
(1) |
Represents securities reserved and available for
grant under the 2014 Equity Incentive Plan |
2014 Equity Incentive Plan
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted
by the Board on March 17, 2014, to attract, motivate and retain
officers, employees, consultants, and directors by issuing common
stock-based incentives to directors, officers, employees, and
consultants who are selected for participation. By relating
incentive compensation to increases in shareholder value, it is
hoped that these individuals will both continue in the long-term
service of the Company and be motivated to experience a heightened
interest and participate in the future success of Company
operations. An aggregate of 3,000,000 shares of Common Stock are
reserved for grant and issuance pursuant to the 2014 Plan. The 2014
Plan is administered and interpreted by our Compensation Committee
(the “Administrator”). Awards under the 2014 Plan may be
granted in any one or all of the following forms: (i) incentive
stock options (“ISOs”) intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”); (ii)
non-qualified stock options (“NSOs”); (iii) stock appreciation
rights, which may be granted in tandem with options or on a
stand-alone basis; (iv) shares of restricted stock; (v) shares of
unrestricted stock; (vi) performance shares, and (vii) performance
units.
Options may not be granted under the 2014 Plan at an exercise price
of less than the fair market value of the common stock on the date
of grant and the term of options cannot exceed ten years. ISOs may
only be granted to persons who are employees of the Company. The
exercise price of an ISO granted to a holder of more than 10% of
the common stock must be at least 110% of the fair market value of
the common stock on the date of grant, and the term of these
options cannot exceed five years.
The Administrator also may grant stock appreciation rights. Stock
appreciation rights represent the right to receive upon exercise an
amount payable in cash or common stock equal to (A) the number of
shares with respect to which the stock appreciation right is being
exercised multiplied by (B) the excess of (i) the fair market value
of a share of common stock on the date the award is exercised over
(ii) the exercise price specified in the award agreement.
Under the performance award component of the 2014 Plan,
participants may be granted an award denominated in shares of
common stock or in dollars. Achievement of the performance targets,
or multiple performance targets established by the Administrator
relating to corporate, group, unit or individual performance based
upon standards set by the Administrator shall entitle the
participant to payment at the full amount or a portion of the
amount specified with respect to the award, at the discretion of
the Administrator based on its evaluation of the performance of the
target goals applicable to such award. Payment may be made in cash,
common stock or any combination thereof, as determined by the
Administrator, and shall be adjusted in the event the participant
ceases to be an employee of the Company before the end of a
performance cycle by reason of death, disability, or
retirement.
Under the stock component of the 2014 Plan, the Administrator may,
in selected cases, grant to a plan participant a given number of
shares of restricted stock or unrestricted stock. Restricted stock
under the 2014 Plan is common stock restricted as to sale pending
fulfilment of such vesting schedule and employment requirements as
the Administrator shall determine. Prior to the lifting of the
restrictions, the participant will nevertheless be entitled to
receive distributions in liquidation and dividends on, and to vote
the shares of, the restricted stock. The 2014 Plan provides for
forfeiture of restricted stock for breach of conditions of
grant.
The 2014 Plan also permits the board of directors (and not the
Compensation Committee) to grant awards of NSOs, restricted stock
or unrestricted stock to non-employee directors. The board may
authorize individual grants or adopt one or more formulas for
grants of awards to the non-employee directors. All options granted
to non-employee directors must have an exercise price equal to the
fair market value at the date of grant.
The exercise price of awards may be paid in cash, in shares of
common stock (valued at fair market value at the date of exercise),
by delivery of a notice of exercise together with irrevocable
instructions to a broker to deliver to the Company the proceeds of
the sale of common stock or of a loan from the broker sufficient to
pay the exercise price, by having the Company withhold from shares
being exercised the number of shares having a fair market value
equal to the exercise price for all shares being exercised, or by a
combination of the foregoing means of payment, as may be determined
by the Administrator.
Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL
DATA
Not Applicable.
ITEM 7 MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, or MD&A, is intended to provide a reader
of our consolidated financial statements with a narrative from the
perspective of our management on our financial condition, results
of operations, liquidity and certain other factors that may affect
our future results. You should read the following discussion and
analysis of our financial condition and results of operations
together with our financial statements and the related notes and
other financial data included elsewhere in this Annual Report. Some
of the information contained in this discussion and analysis or set
forth elsewhere in this Annual Report, including information with
respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties.
You should review Item 1A of this Annual Report for a discussion of
important factors that could cause actual results to differ
materially from the results described in or implied by the
forward-looking statements contained in the following discussion
and analysis.
Results of Operations:
Years Ended March 31, 2021 and 2020
Revenue, Cost of revenue and Gross profit:
|
|
For the Years Ended
March 31, |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
Dollars |
|
|
Percentage |
|
Manufacturing fees |
|
$ |
20,997,310 |
|
|
$ |
14,526,048 |
|
|
$ |
6,471,262 |
|
|
|
45 |
% |
Licensing
fees |
|
|
4,383,439 |
|
|
|
3,468,591 |
|
|
|
914,848 |
|
|
|
26 |
% |
Total revenue |
|
|
25,380,749 |
|
|
|
17,994,639 |
|
|
|
7,386,110 |
|
|
|
41 |
% |
Cost of manufacturing |
|
|
13,513,611 |
|
|
|
10,015,855 |
|
|
|
3,497,756 |
|
|
|
35 |
% |
Gross profit |
|
$ |
11,867,138 |
|
|
$ |
7,978,784 |
|
|
$ |
3,888,354 |
|
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit -
percentage |
|
|
47 |
% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
Total revenues for the year ended March 31, 2021 increased by $7.4
million or 41%, to $25.4 million, as compared to $18.0 million for
the prior year, primarily due to revenues earned from Amphetamine
ER Capsules, which were launched during the current fiscal year,
increased revenues from Amphetamine IR Tablets, as compared to the
prior year, offset by decreases in license fee revenues resulting
from the full amortization of SequestOx™ milestone revenues
occurring in June 2020 and accordingly providing partial year
contribution to revenues during the year ended March 31, 2021,
while contributing a full year of revenues to the prior year.
Manufacturing fees increased by $6.5 million, or 45%, primarily due
to manufacturing revenues earned from Amphetamine ER Capsules,
which were launched during the current fiscal year, and increased
sales of Amphetamine IR Tablets, as compared to the prior year.
Licensing fees increased by $0.9 million, or 26%.This increase is
primarily due to licensing fees earned from the sale of Amphetamine
ER Capsules, which were launched during the current fiscal year,
and increased licensing revenues earned from the sale of
Amphetamine IR Tablets and Isradipine Capsules, as compared to the
prior year.
Costs of revenue consists of manufacturing and assembly costs. Our
costs of revenue increased by $3.5 million or 35%, to $13.5 million
as compared to $10.0 million for the prior fiscal year. This
increase was due in large part to increased manufacturing
activities and related manufacturing revenues during the year ended
March 31, 2021, as compared to the prior year, and also due to
there being a strong positive correlation of costs of revenue to
manufacturing revenues.
Our gross profit margin was 47% during the year ended March 31,
2021 as compared to 44% during the comparable prior fiscal
year.
Operating expenses:
|
|
For
the Years Ended
March 31, |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
Dollars |
|
|
Percentage |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
$ |
5,112,542 |
|
|
$ |
5,532,462 |
|
|
$ |
(419,920 |
) |
|
|
(8 |
)% |
General
and administrative |
|
|
3,323,045 |
|
|
|
3,349,837 |
|
|
|
(26,792) |
|
|
|
(1) |
% |
Non-cash
compensation |
|
|
13,181 |
|
|
|
62,098 |
|
|
|
(48,917 |
) |
|
|
(79) |
% |
Depreciation
and amortization |
|
|
1,313,847 |
|
|
|
1,319,795 |
|
|
|
(5,948 |
) |
|
|
0 |
% |
Total
operating expenses |
|
$ |
9,762,615 |
|
|
$ |
10,264,192 |
|
|
$ |
(501,577 |
) |
|
|
(5) |
% |
Operating expenses consist of research and development costs,
general and administrative, non-cash compensation and depreciation
and amortization expenses. Operating expenses for the year ended
March 31,2021 decreased by $0.5 million or 5% to $9.8 million, as
compared to $10.3 million for the prior year.
Research and development costs for the year ended March 31,2021
were $5.1 million, a decrease of $0.4 million, or 8%, from $5.5
million of such costs for the prior year. The decrease was a result
of the timing and nature of product development activities during
the year ended March 31,2021 as compared to the prior year.
General and administrative expenses for the year ended March
31,2021 were $3.32 million, a decrease of less than $0.1 million or
1%, from $3.35 million of such costs for the prior year. The
decrease was due in large part to savings achieved from ongoing
cost reduction and control initiatives.
Non-cash compensation expense for the years ended March 31, 2021
and 2020 was less than $0.1 million.
Depreciation and amortization expenses for the year ended March 31,
2021 were $1.3 million, and remained consistent related to such
costs for the prior year.
As a result of the foregoing, our income from operations for the
year ended March 31, 2021 was $2.1 million, compared to an
operating loss of $2.3 million for the prior year.
Other income (expense):
|
|
For the Years Ended
March 31, |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
Dollars |
|
|
Percentage |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative instruments |
|
$ |
1,237,132 |
|
|
$ |
(1,111,548 |
) |
|
$ |
2,348,680 |
|
|
|
-211 |
% |
Interest expense
and amortization of debt issuance costs |
|
|
(259,598 |
) |
|
|
(355,874 |
) |
|
|
96,276 |
|
|
|
-27 |
% |
Gain on sale of
fixed assets |
|
|
48,463 |
|
|
|
— |
|
|
|
48,463 |
|
|
|
n/a |
|
Gain on
transfer/discontinuance of intangible assets |
|
|
— |
|
|
|
1,502,500 |
|
|
|
(1,502,500 |
) |
|
|
-100 |
% |
Interest
income |
|
|
514 |
|
|
|
11,979 |
|
|
|
(11,465 |
) |
|
|
-96 |
% |
PPP
Loan Forgiveness |
|
|
1,013,480 |
|
|
|
— |
|
|
|
1,013,480 |
|
|
|
n/a |
|
Other
income, net |
|
$ |
2,039,991 |
|
|
$ |
47,057 |
|
|
$ |
1,992,934 |
|
|
|
4,235 |
% |
Other income, net for the year ended March 31, 2021 was $2.0
million, an increase in other income, net of $1.9 million from
other income of $0.1 million for the prior year. The increase in
other income (expense), net was due to an increase in income
relating to changes in the fair value of our outstanding derivative
warrants, as compared to the prior fiscal year, PPP loan
forgiveness which occurred during the current fiscal year and not
during the prior fiscal year, offset by gains on
transfer/discontinuance of intangible assets which were recognized
during the prior fiscal year and not during the current fiscal
year. Please note that the change in the fair value of derivative
instruments is determined in large part by the change in the
closing price of the Company’s Common Stock as of the end of the
period, as compared to the closing price at the beginning of the
period, with a strong inverse relationship between the fair value
of our derivatives instruments and decreases in the closing price
of the Company’s Common Stock.
As a result of the foregoing, our income before income taxes for
the year ended March 31,2021 was $4.3 million, compared to a loss
before income taxes of $2.2 million for the prior year.
Liquidity and Capital Resources
Capital Resources
|
|
March
31,
2021 |
|
|
March
31,
2020 |
|
|
Change |
|
Current
assets |
|
$ |
12,194,667 |
|
|
$ |
10,251,279 |
|
|
$ |
1,943,388 |
|
Current
liabilities |
|
$ |
5,812,531 |
|
|
$ |
8,639,548 |
|
|
$ |
(2,827,017 |
) |
Working
capital |
|
$ |
6,382,136 |
|
|
$ |
1,611,731 |
|
|
$ |
4,770,405 |
|
The Company considers cash and working capital balances as several
of the factors the Company uses in evaluating its performance. As
of March 31, 2021, the Company had cash on hand of $3.2
million and accounts receivable to be collected within expected
operating cycles of $3.5 million. The Company believes that such
resources, combined with the working capital surplus of $6.4
million and the continuation of ongoing operations are sufficient
to fund operations through the current operating cycle. For the
year ended March 31, 2021, the Company had income from
operations totaling $2.1 million, net other income totaling $2.0
million and a net income of $5.1 million. The Company’s other
income and net income (loss) available to common shareholders are
significantly influenced by the fluctuations in the fair value of
warrant derivatives with such fair value bearing a strong inverse
correlation to the market share price of the Company’s Common
Stock.
Our working capital (total current assets less total current
liabilities) increased by $4.8 million from $1.6 million as of
March 31, 2020 to $6.4 million as of March 31, 2021,
with such increase being primarily related to the net income of
$5.1 million and a net positive cash flow of $2.1 million
achieved during the year ended March 31, 2021
Summary of Cash Flows:
|
|
For the Years Ended
March 31, |
|
|
|
2021 |
|
|
2020 |
|
Net cash provided by (used
in) operating activities |
|
$ |
3,193,861 |
|
|
$ |
(1,793,821 |
) |
Net cash used in investing
activities |
|
$ |
(262,781 |
) |
|
$ |
(34,953 |
) |
Net cash (used in) provided by
financing activities |
|
$ |
(869,829 |
) |
|
$ |
689,536 |
|
Net cash provided by operating activities for the year ended March
31, 2021 was $3.2 million, which included net income of $5.1
million and increases in non-cash expenses totaling $0.2 million,
offset by net increases in assets and decreases in liabilities
totaling $2.1 million.
Net cash used in investing activities for the year ended March 31,
2021 was comprised of purchases of purchases of property and
equipment of $0.3 million offset by proceeds from the sale of
property and equipment of less than $0.1 million.
Net cash used in financing activities was $0.9 million for the year
ended March 31, 2021 which consisted primarily of proceeds from the
payroll protection program loan offset by loan payments.
Lincoln Park Capital
July 8, 2020 Purchase Agreement
On July 8, 2020, Elite Pharmaceuticals, Inc., a Nevada corporation
(the “Company”), entered into a purchase agreement (the “2020 LPC
Purchase Agreement”), and a registration rights agreement (the
“Registration Rights Agreement”), with Lincoln Park Capital Fund,
LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed
to purchase up to $25.0 million of the Company’s common stock,
$0.001 par value per share (the “Common Stock”), from time to time
over the term of the Purchase Agreement, at the Company’s
direction.
During the year ended March 31, 2021 the Company issued an
aggregate of 5,975,857 shares of Common Stock in the amount of
$469,105 to Lincoln Park as initial commitment shares. The Company
sold 640,543 shares of its Common Stock pursuant to the 2020 LPC
Purchase Agreement during the year ended March 31, 2021 for net
proceeds totaling $42,223. In addition, 10,094 shares were issued
to Lincoln Park as additional commitment shares, pursuant to the
2020 LPC Agreement.
NJEDA Bonds
On August 31, 2005, the Company successfully completed a
refinancing of a prior 1999 bond issue through the issuance of new
tax-exempt bonds (the “Bonds”). The refinancing involved borrowing
$4,155,000, evidenced by a 6.5% Series A Note in the principal
amount of $3,660,000 maturing on September 1, 2030 and a 9% Series
B Note in the principal amount of $495,000 maturing on September 1,
2012. The net proceeds, after payment of issuance costs, were used
(i) to redeem the outstanding tax-exempt Bonds originally issued by
the Authority on September 2, 1999, (ii) refinance other equipment
financing and (iii) for the purchase of certain equipment to be
used in the manufacture of pharmaceutical products. As of March 31,
2016, all of the proceeds were utilized by the Company for such
stated purposes.
Interest is payable semi-annually on March 1 and September 1 of
each year. The Bonds are collateralized by a first lien on the
Company’s facility and equipment acquired with the proceeds of the
original and refinanced Bonds. The related Indenture requires the
maintenance of a Debt Service Reserve Fund of $366,000 in relation
to the Series A Notes.
Bond issue costs of $354,454 were paid from the bond proceeds and
are being amortized over the life of the bonds. Amortization of
bond issuance costs amounted to $14,178 for the fiscal year ended
March 31, 2021.
The NJEDA Bonds require the Company to make an annual principal
payment on September 1st of varying amounts as specified in the
loan documents and semi-annual interest payments on March 1st and
September 1st, equal to interest due on the outstanding principal
at the applicable rate for the semi-annual period just ended.
As of the date of filing of this Annual Report on Form 10-K, there
are no interest or principal amounts in arrears. The Series B Notes
were retired, at par in July 2014.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenues,
or expenses, results of operations, liquidity, capital
expenditures, or capital resources that would be considered
material to investors.
Effects of Inflation
We are subject to price risks arising from price fluctuations in
the market prices of the products that we sell. Management does not
believe that inflation risk is material to our business or our
consolidated financial position, results of operations, or cash
flows.
Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in Note 1 of our
Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K. The following discussion addresses our most
critical accounting policies, which are those that are both
important to the portrayal of our financial condition and results
of operations and that require significant judgment or use of
complex estimates.
Segment Information
Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 280, Segment Reporting,
establishes standards for reporting information about operating
segments. Operating segments are defined as components of an
enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker,
or decision-making group, in deciding how to allocate resources and
in assessing performance. The Company’s chief operating decision
maker is the Chief Executive Officer, who reviews the financial
performance and the results of operations of the segments prepared
in accordance with U.S. GAAP when making decisions about allocating
resources and assessing performance of the Company.
The Company has determined that its reportable segments are
products whose marketing approvals were secured via an Abbreviated
New Drug Applications (“ANDA”) and products whose marketing
approvals were secured via a New Drug Application (“NDA”). ANDA
products are referred to as generic pharmaceuticals and NDA
products are referred to as branded pharmaceuticals.
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. The
reporting segments follow the same accounting policies used in the
preparation of the Company’s audited consolidated financial
statements. Please see note 15 for further details.
Revenue Recognition
The Company generates revenue from the development of pain
management products, manufacturing of a line of generic
pharmaceutical products with approved ANDA, commercialization of
products either by license and the collection of royalties, or
through the manufacture of formulations and the development of new
products and the expansion of licensing agreements with other
pharmaceutical companies, including co-development projects, joint
ventures and other collaborations. The Company also generates
revenue through its focus on the development of various types of
drug products, including branded drug products which require
NDAs.
Under ASC 606, Revenue from Contacts with Customers (“ASC 606”),
the Company recognizes revenue when the customer obtains control of
promised goods or services, in an amount that reflects the
consideration which is expected to be received in exchange for
those goods or services. The Company recognizes revenues following
the five-step model prescribed under ASC 606: (i) identify
contract(s) with a customer; (ii) identify the performance
obligation(s) in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance
obligation(s) in the contract; and (v) recognize revenues when (or
as) the Company satisfies a performance obligation. The Company
only applies the five-step model to contracts when it is probable
that the entity will collect the consideration it is entitled to in
exchange for the goods or services it transfers to the customer. At
contract inception, once the contract is determined to be within
the scope of ASC 606, the Company assesses the goods or services
promised within each contract and determines those that are
performance obligations and assesses whether each promised good or
service is distinct. The Company then recognizes as revenue the
amount of the transaction price that is allocated to the respective
performance obligation when (or as) the performance obligation is
satisfied. Sales, value add, and other taxes collected on behalf of
third parties are excluded from revenue.
Nature of goods and services
The following is a description of the Company’s goods and services
from which the Company generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant
payment terms for each, as applicable:
a) Manufacturing Fees
The Company is equipped to manufacture controlled-release products
on a contract basis for third parties, if and when the products are
approved. These products include products using controlled-release
drug technology and products utilizing abuse deterrent
technologies. The Company also develops and markets (either on its
own or by license to other companies) generic and proprietary
controlled-release and abuse deterrent pharmaceutical products.
The Company recognizes revenue when the customer obtains control of
the Company’s product based on the contractual shipping terms of
the contract. Revenue on product are presented gross because the
Company is primarily responsible for fulfilling the promise to
provide the product, is responsible to ensure that the product is
produced in accordance with the related supply agreement and bears
risk of loss while the inventory is in-transit to the commercial
partner. Revenue is measured as the amount of consideration the
Company expects to receive in exchange for transferring products to
a customer.
b) License Fees
The Company enters into licensing and development agreements, which
may include multiple revenue generating activities, including
milestones payments, licensing fees, product sales and services.
The Company analyzes each element of its licensing and development
agreements in accordance with ASC 606 to determine appropriate
revenue recognition. The terms of the license agreement may include
payment to the Company of licensing fees, non-refundable upfront
license fees, milestone payments if specified objectives are
achieved, and/or royalties on product sales.
If the contract contains a single performance obligation, the
entire transaction price is allocated to the single performance
obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price based on the
estimated relative standalone selling prices of the promised
products or services underlying each performance obligation. The
Company determines standalone selling prices based on the price at
which the performance obligation is sold separately. If the
standalone selling price is not observable through past
transactions, the Company estimates the standalone selling price
taking into account available information such as market conditions
and internally approved pricing guidelines related to the
performance obligations.
The Company recognizes revenue from non-refundable upfront payments
at a point in time, typically upon fulfilling the delivery of the
associated intellectual property to the customer. For those
milestone payments which are contingent on the occurrence of
particular future events (for example, payments due upon a product
receiving FDA approval), the Company determined that these need to
be considered for inclusion in the calculation of total
consideration from the contract as a component of variable
consideration using the most-likely amount method. As such, the
Company assesses each milestone to determine the probability and
substance behind achieving each milestone. Given the inherent
uncertainty of the occurrence of future events, the Company will
not recognize revenue from the milestone until there is not a high
probability of a reversal of revenue, which typically occurs near
or upon achievement of the event.
Significant management judgment is required to determine the level
of effort required under an arrangement and the period over which
the Company expects to complete its performance obligations under
the arrangement. If the Company cannot reasonably estimate when its
performance obligations either are completed or become
inconsequential, then revenue recognition is deferred until the
Company can reasonably make such estimates. Revenue is then
recognized over the remaining estimated period of performance using
the cumulative catch-up method.
When determining the transaction price of a contract, an adjustment
is made if payment from a customer occurs either significantly
before or significantly after performance, resulting in a
significant financing component. Applying the practical expedient
in ASC 606-10-32-18, the Company does not assess whether a
significant financing component exists if the period between when
the Company performs its obligations under the contract and when
the customer pays is one year or less. None of the Company’s
contracts contained a significant financing component as of March
31, 2020.
In accordance with ASC 606-10-55-65, royalties are recognized when
the subsequent sale of the customer’s products occurs.
Collaborative Arrangements
Contracts are considered to be collaborative arrangements when they
satisfy the following criteria defined in ASC 808, Collaborative
Arrangements:
|
● |
The
parties to the contract must actively participate in the joint
operating activity; and, |
|
● |
The
joint operating activity must expose the parties to the possibility
of significant risk and rewards, based on whether or not the
activity is successful. |
Cash
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Cash and cash equivalents consist of cash on deposit with banks and
money market instruments. The Company places its cash and cash
equivalents with high-quality, U.S. financial institutions and, to
date has not experienced losses on any of its balances.
Accounts Receivable
Accounts receivable are comprised of balances due from customers,
net of estimated allowances for uncollectible accounts, if any. In
determining collectability, historical trends are evaluated, and
specific customer issues are reviewed on a periodic basis to arrive
at appropriate allowances.
Inventory
Inventory is recorded at the lower of cost or market on a specific
identification by lot number basis.
Long-Lived Assets
The Company periodically evaluates the fair value of long-lived
assets, which include property and equipment and intangibles,
whenever events or changes in circumstances indicate that its
carrying amounts may not be recoverable.
Property and equipment are stated at cost. Depreciation is provided
on the straight-line method based on the estimated useful lives of
the respective assets which range from three to forty years. Major
repairs or improvements are capitalized. Minor replacements and
maintenance and repairs which do not improve or extend asset lives
are expensed currently.
Upon retirement or other disposition of assets, the cost and
related accumulated depreciation are removed from the accounts and
the resulting gain or loss, if any, is recognized in income.
Intangible Assets
The Company capitalizes certain costs to acquire intangible assets;
if such assets are determined to have a finite useful life they are
amortized on a straight-line basis over the estimated useful life.
Costs to acquire indefinite lived intangible assets, such as costs
related to ANDAs are capitalized accordingly.
The Company tests its intangible assets for impairment at least
annually (as of March 31st) and whenever events or circumstances
change that indicate impairment may have occurred. A significant
amount of judgment is involved in determining if an indicator of
impairment has occurred. Such indicators may include, among others
and without limitation: a significant decline in the Company’s
expected future cash flows; a sustained, significant decline in the
Company’s stock price and market capitalization; a significant
adverse change in legal factors or in the business climate of the
Company’s segments; unanticipated competition; and slower growth
rates.
Research and Development
Research and development expenditures are charged to expense as
incurred.
Leases
Lease agreements are evaluated to determine if they are capital
leases meeting any of the following criteria at inception: (a)
transfer of ownership; (b) bargain purchase option; (c) the lease
term is equal to 75 percent or more of the estimated economic life
of the leased property; or (d) the present value at the beginning
of the lease term of the minimum lease payments, excluding that
portion of the payments representing executory costs such as
insurance, maintenance, and taxes to be paid by the lessor,
including any profit thereon, equals or exceeds 90 percent of the
excess of the fair value of the leased property to the lessor at
lease inception over any related investment tax credit retained by
the lessor and expected to be realized by the lessor.
If at its inception a lease meets any of the four lease criteria
above, the lease is classified by the Company as a capital lease;
and if none of the four criteria are met, the lease is classified
by the Company as an operating lease.
Contingencies
Occasionally, the Company may be involved in claims and legal
proceedings arising from the ordinary course of its business. The
Company records a provision for a liability when it believes that
it is both probable that a liability has been incurred, and the
amount can be reasonably estimated. If these estimates and
assumptions change or prove to be incorrect, it could have a
material impact on the Company’s consolidated financial statements.
Contingencies are inherently unpredictable, and the assessments of
the value can involve a series of complex judgments about future
events and can rely heavily on estimates and assumptions.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. Where applicable, the Company records a
valuation allowance to reduce any deferred tax assets that it
determines will not be realizable in the future.
The Company recognizes the benefit of an uncertain tax position
that it has taken or expects to take on income tax returns it files
if such tax position is more likely than not to be sustained on
examination by the taxing authorities, based on the technical
merits of the position. These tax benefits are measured based on
the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate resolution.
The Company operates in multiple tax jurisdictions within the
United States of America. The Company remains subject to
examination in all tax jurisdiction until the applicable statutes
of limitation expire. As of March 31, 2021, a summary of the tax
years that remain subject to examination in our major tax
jurisdictions are: United States – Federal, 2015 and forward, and
State, 2011 and forward. The Company did not have any unrecognized
tax positions for the years ended March 31, 2021 and 2020.
Warrants and Preferred Shares
The accounting treatment of warrants and preferred share series
issued is determined pursuant to the guidance provided by ASC 470,
Debt, ASC 480, Distinguishing Liabilities from
Equity, and ASC 815, Derivatives and Hedging, as
applicable. Each feature of a freestanding financial instruments
including, without limitation, any rights relating to subsequent
dilutive issuances, dividend issuances, equity sales, rights
offerings, forced conversions, optional redemptions, automatic
monthly conversions, dividends and exercise are assessed with
determinations made regarding the proper classification in the
Company’s financial statements.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance
with ASC Topic 718, Compensation-Stock Compensation. Under
the fair value recognition provisions of this topic, stock-based
compensation cost is measured at the grant date based on the fair
value of the award and is recognized as an expense on a
straight-line basis over the requisite service period, based on the
terms of the awards. The cost of the stock-based payments to
nonemployees that are fully vested and non-forfeitable as at the
grant date is measured and recognized at that date, unless there is
a contractual term for services in which case such compensation
would be amortized over the contractual term.
In accordance with the Company’s Director compensation policy and
certain employment contracts, director’s fees and a portion of
employee’s salaries are to be paid via the issuance of shares of
the Company’s common stock, in lieu of cash, with the valuation of
such share being calculated on a quarterly basis and equal to the
simple average closing price of the Company’s common stock for each
trading day of the quarter then ended.
Earnings (Loss) Per Share Applicable to Common
Shareholders’
The Company follows ASC 260, Earnings Per Share, which
requires presentation of basic and diluted earnings (loss) per
share (“EPS”) on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In the
accompanying financial statements, basic earnings (loss) per share
is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period.
Diluted EPS excluded all dilutive potential shares if their effect
was anti-dilutive.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures
(“ASC Topic 820”) provides a framework for measuring fair
value in accordance with generally accepted accounting
principles.
ASC Topic 820 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. ASC Topic 820 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed
based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market
participant assumptions developed based on the best information
available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The three levels
of the fair value hierarchy under ASC Topic 820 are described as
follows:
|
● |
Level 1 |
Unadjusted quoted prices in
active markets for identical assets or liabilities that are
accessible at the measurement date. |
|
● |
Level
2 |
Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices for
similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not
active; inputs other than quoted prices that are observable for the
asset or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means. |
|
● |
Level
3 |
Inputs that are unobservable for
the asset or liability. |
The carrying amounts of the Company’s financial assets and
liabilities, such as cash, accounts receivable, prepaid expenses
and other current assets, accounts payable and accrued expenses,
approximate their fair values because of the short maturity of
these instruments. Based upon current borrowing rates with similar
maturities the carrying value of long-term debt approximates fair
value.
Non-Financial Assets that are Measured at Fair Value on a
Non-Recurring Basis
Non-financial assets such as intangible assets, and property and
equipment are measured at fair value only when an impairment loss
is recognized. The Company did not record an impairment charge
related to these assets in the periods presented.
Treasury Stock
The Company records treasury stock at the cost to acquire it and
includes treasury stock as a component of shareholders’ equity
(deficit).
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value
Measurement (ASC 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13
removes certain disclosures, modifies certain disclosures and adds
additional disclosures. The ASU is effective for annual periods,
including interim periods within those annual periods, beginning
after December 15, 2019. Early adoption is permitted. The Company
adopted the guidance as of April 1, 2020. The Company is not
materially impacted by the implementation of this
pronouncement.
In November 2018, the FASB issued ASU 2018-18, Collaborative
Arrangements (Topic 808), Clarifying the Interaction between
Topic 808 and Topic 606. The ASU clarifies when transactions
between collaborative participants are in the scope of ASC 606. The
ASU also provides some guidance on presentation of transactions not
in the scope of ASC 606. ASU 2018-18 is effective for fiscal years,
and interim periods within those years, beginning after December
15, 2019. Early adoption is permitted for fiscal years, and interim
periods within those years. The Company adopted the guidance as of
April 1, 2020. The Company is not materially impacted by the
implementation of this pronouncement.
In March 2020, the FASB issued ASU 2020-03, Codification
Improvements to Financial Instruments. The ASU clarifies
disclosure guidance for fair value options, adds clarifications to
the subsequent measurement of fair value, clarifies disclosure for
depository and lending institutions, clarifies the line-of-credit
or revolving-debt arrangements guidance, and the interaction of
Financial Instruments - Credit Losses (Topic 326) with Leases
(Topic 842) and Transfers and Servicing-Sales of Financial Assets
(Subtopic 860-20). In accordance with ASU 2020-03, the Company
adopted the guidance as of April 1, 2020. The Company is not
materially impacted by the implementation of this
pronouncement.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. This update requires immediate recognition
of management’s estimates of current expected credit losses
(“CECL”). Under the prior model, losses were recognized only as
they were incurred. The new model is applicable to all financial
instruments that are not accounted for at fair value through net
income. The standard is effective for fiscal years beginning after
December 15, 2022 for public entities qualifying as smaller
reporting companies. Early adoption is permitted. The Company is
currently assessing the impact of this update on the consolidated
financial statements and does not expect a material impact on the
consolidated financial statements.
Management has evaluated other recently issued accounting
pronouncements and does not believe that any of these
pronouncements will have a significant impact on our consolidated
financial statements and related disclosures.
ITEM 7A QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Annual Report on Form
10-K are our Consolidated Financial Statements, beginning on page
F-1.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act, refers to controls and
procedures that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal
executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure. As
required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K. Based on that
evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures were
effective as of March 31, 2021 at the reasonable assurance
level.
Management’s Report on Internal Control Over Financial
Reporting
Internal control over financial reporting refers to the process
designed by, or under the supervision of, our Chief Executive
Officer and Chief Financial Officer, and effected by our board of
directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and
includes those policies and procedures that: (1) pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets; (2)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial
statements.
Internal control over financial reporting may not prevent or detect
all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are achieved.
Further, the design of a control system must be balanced against
resource constraints, and therefore the benefits of controls must
be considered relative to their costs. Given the inherent
limitations in all systems of controls, no evaluation of controls
can provide absolute assurance all control issues and instances of
fraud, if any, within a company have been detected. These inherent
limitations include the realities that judgments in decision making
can be faulty and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people
or by management override of the controls. The design of any system
of controls is also based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become
inadequate because of changes in conditions or the degree of
compliance with policies or procedures may deteriorate.
Accordingly, given the inherent limitations in a cost-effective
system of internal control, financial statement misstatements due
to error or fraud may occur and may not be detected. Our disclosure
controls and procedures are designed to provide reasonable, not
absolute, assurance of achieving their objectives. We conduct
periodic evaluations of our systems of controls to enhance, where
necessary, our control policies and procedures.
Management is responsible for establishing and maintaining adequate
internal control over our financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal
control over financial reporting. Management has used the framework
set forth in the report entitled “Internal Control—Integrated
Framework (2013)” published by the Committee of Sponsoring
Organizations of the Treadway Commission to evaluate the
effectiveness of our internal control over financial reporting.
Based on its evaluation, management has concluded that our internal
control over financial reporting was effective as of March 31, 2021
at the reasonable assurance level.
Changes in internal control over financial reporting
There were no changes in our internal control over financial
reporting identified in management’s evaluation pursuant to Rules
13a-15(d) or 15d-15(d) of the Exchange Act during the fiscal
quarter ended March 31, 2021 that materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
The following sets forth biographical information about each of our
directors and executive officers as of the date of this report:
Name |
|
Age |
|
Position |
|
Director/Officer
Since |
|
Director Tier |
Nasrat Hakim |
|
60 |
|
President, Chief Executive Officer and
Director |
|
August 2013 |
|
III |
Barry Dash, Ph. D. |
|
90 |
|
Director |
|
April 2005 |
|
II |
Jeffrey Whitnell |
|
65 |
|
Director |
|
October 2009 |
|
III |
Davis Caskey |
|
73 |
|
Director |
|
April 2016 |
|
I |
Marc Bregman |
|
50 |
|
Chief Financial Officer, Secretary and
Treasurer |
|
May 2021 |
|
|
Douglas Plassche |
|
58 |
|
Executive Vice President of
Operations |
|
August 2013 |
|
|
The principal occupations and employment of each Director during
the past five years is set forth below. In each instance in which
dates are not provided in connection with a director’s business
experience, such nominee has held the position indicated for at
least the past five years.
Each director currently holds office until the expiration of his
Tier (each for three years) or until such director’s death,
resignation, or removal. Pursuant to our recently amended and
restated bylaws, our Board of Directors is now classified into
three separate tiers of directors, with each respective tier to
serve a three-year term and until their successors are duly elected
and qualified.
Nasrat Hakim
Nasrat Hakim has served as a Director, President, and Chief
Executive officer since August 2013. He has been a member of the
Audit Committee, member and chairman of the nominating Committee
and member of the Compensation Committee since September 2016. Mr.
Hakim has more than 30 years of pharmaceutical and medical industry
experience in Quality Assurance, Analytical Research and
Development, Technical Services, and Regulatory Compliance. He
brings with him proven management experience, in-depth knowledge of
manufacturing systems, development knowledge in immediate and
extended release formulations and extensive regulatory experience
of GMP and FDA regulations. From 2004 to 2013, Mr. Hakim was
employed by Actavis, Watson and Alpharma in various senior
management positions. Most recently, Mr. Hakim served as
International Vice President of Quality Assurance at Actavis,
overseeing 25 sites with more than 3,000 employees under his
leadership. Mr. Hakim also served as Corporate Vice President of
Technical Services, Quality and Regulatory Compliance for Actavis
U.S., Global Vice President, Quality, and Regulatory Compliance for
Alpharma, as well as Executive Director of Quality Unit at
TheraTech, overseeing manufacturing and research and development.
In 2009, Mr. Hakim founded Mikah Pharma, LLC, a virtual, fully
functional pharmaceutical company. Mr. Hakim holds a Bachelor in
Chemistry/Bio-Chemistry and Masters of Science in Chemistry from
California State University at Sacramento, Sacramento, CA; a
Masters in Law with Graduate Certification in U.S. and
International Taxation from St. Thomas University, School of Law,
Miami, FL.; and a Graduate Certification in Regulatory Affairs
(RAC) from California State University at San Diego, San Diego, CA.
Mr. Hakim’s leadership experience (consisting of extensive
experience in senior management positions, responsible for 25
global manufacturing/regulatory sites with more than 3,000
employees under his leadership), industry experience (comprising
more than 30 years of pharmaceutical and medical industry
experience served in various quality assurance, analytical research
and development/technical services and compliance positions) and
academic experience (including Bachelor degrees in Chemistry and
Bio-Chemistry, Masters degrees in Chemistry and Law, with Graduate
Certification in U.S. and International Taxation, and a Graduate
Certification in Regulatory Affairs) led to the conclusion that he
is qualified to serve as a director.
Barry Dash, Ph.D.
Dr. Barry Dash has served as a Director since April 2005,
member of the Audit Committee since April 2005, member of the
Nominating Committee since April 2005 and member and Chairman of
the Compensation Committee since June 2007. Dr. Dash has been,
since 1995, President and Managing Member of Dash Associates,
L.L.C., an independent consultant to the pharmaceutical and health
industries. From 1983 to 1996 he was employed by Whitehall-Robins
Healthcare, a division of American Home Products Corporation (now
known as Wyeth), initially as Vice President of Scientific Affairs,
then as Senior Vice President of Scientific Affairs and then as
Senior Vice President of Advanced Technologies, during which time
he personally supervised six separate departments: Medical and
Clinical Affairs, Regulatory Affairs, Technical Affairs, Research
and Development, Analytical R&D and Quality Management/Q.C. Dr.
Dash had been employed by the Whitehall Robins Healthcare from 1960
to 1976, during which time he served as Director of Product
Development Research, Assistant Vice President of Product
Development and Vice President of Scientific Affairs. Dr. Dash had
been employed by J.B. Williams Company (Nabisco Brands, Inc.) from
1978 to 1982. From 1976 to 1978 he was Vice President and Director
of Laboratories of the Consumer Products Division of American Can
Company. Dr. Dash holds a Ph.D. from the University of Florida and
M.S. and B.S. degrees from Columbia University where he was
Assistant Professor at the College of Pharmaceutical Sciences from
1956 to 1960. He is a member of the American Pharmaceutical
Association, the American Association for the Advancement of
Science and the Society of Cosmetic Chemist, American Association
of Pharmaceutical Scientists, Drug Information Association,
American Foundation for Pharmaceutical Education, and Diplomate
American Board of Forensic Examiners. He is the author of
scientific publications and patents in the pharmaceutical field.
Dr. Dash’s extensive education in pharmaceutical sciences and his
experience in the development of scientific products, including his
experience in regulatory affairs, led to the conclusion that he is
qualified to serve as a director.
Jeffrey Whitnell
Jeffrey Whitnell has served as a Director since October 23,
2009, Chairman of the Audit Committee, member of the Compensation
Committee since October 2009 and designated by the Board as an
“audit committee financial expert” as defined under
applicable rules under the Exchange Act. Since April 2015, Mr.
Whitnell has provided financial advisory services, primarily to the
healthcare industry, including LifeWatch Services, where he served
as the Vice President, Finance & Controller. From June2010 to
March 2015, Mr. Whitnell was the Chief Financial Officer for
ReliefBand Medical Technologies, a medical device company. From
June 2009 to June 2010, Mr. Whitnell provided financial advisory
services to various healthcare companies, including ReliefBand
Medical Technologies. From June 2004 to June 2009, Mr. Whitnell was
Chief Financial Officer and Senior Vice President of Finance at
Akorn, Inc. From June 2002 to June 2004, Mr. Whitnell was Vice
President of Finance and Treasurer for Ovation Pharmaceuticals.
From 1997 to 2001, Mr. Whitnell was Vice President of Finance and
Treasurer for MediChem Research. Prior to 1997, Mr. Whitnell held
various finance positions at Akzo Nobel and Motorola. Mr. Whitnell
began his career as an auditor with Arthur Andersen & Co. He is
a certified public accountant and holds an M.B.A. in Finance from
the University of Chicago Booth School of Business and a B.S. in
Accounting from the University of Illinois. Mr. Whitnell’s
qualifications as an accounting and audit expert provide specific
experience to serve as a director for the Company.
Davis Caskey
Davis Caskey has served as a Director since April 2016, and
a member of the Audit Committee, the nominating Committee and the
Compensation Committee since September 2016. He brings more than 40
years of pharmaceutical industry experience to this position. Mr.
Caskey is currently President & CEO of Caskey LLC, which he
formed in 2013 to serve as an umbrella to manage his pharmaceutical
consulting and other business interests. From 1990 to 2013, Davis
served as the operating officer of ECR Pharmaceuticals, of which he
was a founding member. HiTech Pharmacal acquired the privately held
ECR in 2009 and Mr. Caskey continued in his role until retiring in
2013. At ECR, Mr. Caskey was credited with the establishment of the
company’s sales and marketing structure, its product distribution
format, and the development and management of the firm’s internal
organization. His responsibilities included the oversight of drug
development and regulatory filings, product acquisitions, and
acquisition of other companies. A primary focus was to conceive and
develop, with the assistance of key strategic partners, unique
dosage forms and extended release formulations of products which
enhance patient compliance and safety. Prior to ECR, Mr. Caskey was
employed by A.H. Robins for 18 years in various field and home
office management positions. His experience brings critical insight
into the marketing and distribution of pharmaceutical products in a
rapid and ever-changing competitive marketplace. Mr. Caskey
attended the University of Texas (Austin) and Lamar University, and
holds bachelor’s and master’s degrees.
Marc Bregman
Marc Bregman has served as Chief Financial Officer,
Secretary and Treasurer of the Company since May 17, 2021. Prior to
joining the Company, from February 2015 to May 2021, Mr. Bregman
served as Controller of Langan Engineering. From 2013 to 2015, Mr.
Bregman served as financial controller at Chemtrade Logistics. From
2009 to 2013, Mr. Bregman held corporate finance positions at
Chemetall. From 1999 to 2009, Mr. Bregman held multiple corporate
finance positions at National Starch and Chemical Company. Mr.
Bregman began his career as a certified public accountant in the
audit department of Ernst & Young, LLP. Mr. Bregman is a
Certified Public Accountant (“CPA”), and holds a Master in Business
degree from the New Jersey Institute of Technology, Newark, NJ and
Bachelor of Science in Accounting from William Paterson College,
Wayne, NJ. Mr. Bregman’s experience and expertise in the areas of
finance, financial planning & analysis, Sarbanes Oxley
compliance, financial auditing and manufacturing accounting,
provides the qualifications, attributes, and skills to serve as an
officer for the Company.
Douglas Plassche
Douglas Plassche has served as Executive Vice President of
Operations since August 2013. Prior to joining the Company, from
2009 to 2013, Mr. Plassche served as the Managing Director of the
New Jersey Solid Oral Dose Operations of Actavis, overseeing 450
employees and the production of more than 100 products. From 2007
to 2009, Mr. Plassche was the Senior Director of Manufacturing for
PAR Pharmaceuticals, overseeing 200 employees and the production of
more than 70 products. From 1990 – 2007, Mr. Plassche was employed
by Schering-Plough, progressing steadily through multiple
disciplines, locations, and technical operations sectors with
increasing levels of responsibility. Mr. Plassche has a bachelor’s
degree in Economics from Rochester University.
There are no family relationships between any of our directors and
executive officers.
Committees of the Board
The Board of Directors has an Audit Committee, a Compensation
Committee, and a Nominating Committee.
Audit Committee
During Fiscal 2021, the members of the Audit Committee were Jeffrey
Whitnell (Chairman of the Audit Committee), Dr. Barry Dash, Davis
Caskey and Nasrat Hakim. We deem Messrs. Whitnell, Dash, and Caskey
to be independent and Mr. Whitnell to be qualified as an audit
committee financial expert. The Board of Directors has determined
that Messrs. Whitnell, Dash and Caskey are independent directors as
(i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii)
under Sections 803A(2) and 803B(2)(a) of the NYSE American LLC
Company Guide (although our securities are not listed on the NYSE
American LLC or any other national exchange).
Nominating Committee
During Fiscal 2021, the members of the Nominating Committee were
Nasrat Hakim (Chairman of the Nominating Committee), Dr. Barry
Dash, and Davis Caskey. There were no material changes to the
procedures by which security holders may recommend nominees to our
Board of Directors since the filing of our last Annual Report on
Form 10-K.
Compensation Committee
During Fiscal 2021, the members of the Compensation Committee were
Dr. Barry Dash (Chairman of the Compensation Committee), Jeffrey
Whitnell, Davis Caskey and Nasrat Hakim.
Code of Conduct and Ethics
At the first meeting of the Board of Directors following the annual
meeting of stockholders held on June 22, 2004, and as further
updated effective July 2009, the Board of Directors adopted a Code
of Business Conduct and Ethics that is applicable to the Company’s
directors, officers, and employees. A copy of the Code of Business
Conduct and Ethics is available on our website at
www.elitepharma.com, under Investor Relations.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and
executive officers and persons who beneficially own more than ten
percent of our common stock to report their ownership of, and
transactions in, our stock in filings with the SEC. Copies of these
reports are also required to be supplied to VPG. VPG believes,
based solely on a review of the copies of such reports received,
that our directors and executive officers and persons who
beneficially own more than ten percent of our common stock complied
with all applicable Section 16(a) reporting requirements during the
year ended March 31, 2021, except that Mr. Plassche filed one late
Form 4 reporting the award of salary shares.
ITEM 11 EXECUTIVE
COMPENSATION
Role of the Compensation Committee
The Company formed the Compensation Committee in June 2007. Since
the formation of the Compensation Committee all elements of the
executives’ compensation are determined by the Compensation
Committee, which currently is comprised of three independent
non-employee directors, and one director who is also the Company’s
Chief Scientific Officer. However, the Compensation Committee’s
decisions concerning the compensation of the Company’s Chief
Executive Officer are subject to ratification by the independent
directors of the Board of Directors. The members of the
Compensation Committee are Dr. Barry Dash (Chairman of the
Compensation Committee), Jeffrey Whitnell, Davis Caskey and Nasrat
Hakim. The Committee operates pursuant to a charter. Under the
Compensation Committee charter, the Compensation Committee has
authority to retain compensation consultants, outside counsel, and
other advisors that the committee deems appropriate, in its sole
discretion, to assist it in discharging its duties, and to approve
the terms of retention and fees to be paid to such consultants.
During the fiscal year ended March 31, 2021, the Compensation
Committee did not engage any advisors.
Named Executive Officers
The named executive officers for the fiscal year ended March 31,
2021 were:
|
● |
Nasrat Hakim, Chief Executive Officer, and
President for the full year; |
|
● |
Carter J. Ward, Chief Financial Officer,
Secretary, and Treasurer for the full year; |
|
● |
Douglas Plassche, Executive Vice President for
the full year. |
These individuals are referred to collectively as the “Named
Executive Officers”.
Our executive compensation program
Overview
Our approach to executive compensation, one of the most important
and complex aspects of corporate governance, is influenced by our
belief in rewarding people for consistently strong execution and
performance. We believe that the ability to attract and retain
qualified executive officers and other key employees is essential
to our long-term success. Our plan to obtain and retain highly
skilled employees is to provide significant incentive compensation
opportunities and market competitive salaries. We strive to link
individual employee objectives with overall company strategies and
results, and to reward executive officers and significant employees
for their individual contributions to those strategies and results.
Furthermore, we believe that equity ownership serves to align the
interests of our executives with those of our stockholders. As
such, equity is a key component of our compensation program.
The primary elements of our executive compensation program are base
salary, incentive cash and stock bonus opportunities and equity
incentives typically in the form of stock option grants or stock
awards. Although we provide other types of compensation, these
three elements are the principal means by which we provide the
Named Executive Officers with compensation opportunities.
Elements of our executive compensation program
Base Salary
We pay a base salary to certain of the Named Executive Officers,
with such payments being made in either cash, Common Stock or a
combination of cash and Common Stock. In general, base salaries for
the Named Executive Officers are determined by evaluating the
responsibilities of the executive’s position, the executive’s
experience, and the competitive marketplace. Base salary
adjustments are considered and take into account changes in the
executive’s responsibilities, the executive’s performance, and
changes in the competitive marketplace. We believe that the base
salaries of the Named Executive Officers are appropriate within the
context of the compensation elements provided to the executives and
because they are at a level which remains competitive in the
marketplace.
In the section below entitled “Agreements with Named Executive
Officers”, we describe the breakdown between compensation paid
in cash and in equity for each Named Executive Officer during the
fiscal year ended March 31, 2021.
Bonuses
Named Executive Officers may earn discretionary bonuses, which are
awarded by the Compensation Committee in its discretion after the
end of a fiscal year based on its assessment of factors including
Company and individual performance. Pursuant to his employment
agreement, Mr. Hakim was eligible to earn a discretionary bonus for
the fiscal year ended March 31, 2021 up to 100% of his base salary
($500,000 for fiscal 2021), which he earned in full. In addition,
as described in the section below entitled “Agreements with Named
Executive Officers,” Mr. Plassche was guaranteed a $75,000 annual
bonus for the fiscal year ended March 31, 2021. Mr. Ward was
awarded a $25,000 discretionary bonus for his service during fiscal
2021.
Equity
As noted above, certain components of our Named Executive Officers’
fiscal year 2021 base salary and bonuses were payable in shares of
Common Stock. In addition, Messrs. Ward and Plassche are each
entitled to an annual grant of restricted shares of Common Stock,
as described in the section entitled “Agreements with Named
Executive Officers” below. During the fiscal year ended 2021,
this amount was $25,000 worth of fully vested restricted shares for
Mr. Ward and $30,000 worth of fully vested restricted shares for
Mr. Plassche.
From time to time, we also grant stock options to our Named
Executive Officers which generally vest over time, obtainment of a
corporate goal or a combination of the two. We did not grant any
stock options to our named executive officers in fiscal year
2021.
Retirement Benefits
We maintain a tax-qualified retirement plan under Section 401(k) of
the Code. The plan allows employees to defer compensation on a
pre-tax basis subject to certain limits; however, Elite does not
provide a matching contribution to its participants.
Perquisites
Mr. Hakim receives a monthly car allowance of up to $1,500 pursuant
to the terms of his employment agreement. Mr. Plassche receives a
monthly car allowance of up to $500. Mr. Hakim is also entitled to
a monthly housing allowance up to $5,000. These perquisites
represent a small fraction of the total compensation of each such
Named Executive Officer. The value of the perquisites we provide
are taxable to the Named Executive Officers and the incremental
cost to us of providing these perquisites is reflected in the
Summary Compensation Table. The Board of Directors believes that
the perquisites provided are reasonable and appropriate. The
Company generally covers life insurance premiums for its employee
population, including its Named Executive Officers. For more
information on perquisites provided to the Named Executive
Officers, please see the “All Other Compensation” column of
the Summary Compensation Table.
Agreements with Named Executive Officers
Nasrat Hakim
Pursuant to his August 2013 employment agreement, as amended on
January 12, 2016 (the “Hakim Employment Agreement”), Mr.
Hakim receives an annual salary of $500,000 per year. The Salary is
paid in shares of the Company’s Common Stock pursuant to the
Company’s current procedures for paying Company executives in
Stock. He also is entitled to an annual performance bonus equal to
up to 100% of his annual salary, payable in shares of Common Stock
as well. The Board may also award discretionary bonuses in its sole
discretion. Mr. Hakim is entitled to employee benefits (e.g.,
health, vacation, employee benefit plans and programs) consistent
with other Company employees of his seniority and a car allowance
of up to $1,500 per month. The Hakim Employment Agreement contains
restrictive covenants including a confidentiality provision and a
one year post-termination non-solicit provision.
Mr. Hakim’s employment is terminable by the Company for cause (as
defined below). The Hakim Employment Agreement also may be
terminated by the Company upon at least 30 days written notice due
to disability (as defined below) or without cause. Mr. Hakim can
terminate the Hakim Employment Agreement by resigning, provided he
gives notice at least 60 days prior to the effective resignation
date.
If Mr. Hakim is terminated for cause or he resigns, he only is
entitled to accrued and unpaid annual salary, accrued vacation time
and any reasonable and necessary business expenses, all through the
date of termination and payable in stock (“Basic Termination
Benefits”). If Mr. Hakim is terminated because of disability or
death, in addition to Basic Termination Benefits, he is entitled to
a pro rata annual bonus through the date of termination (payable in
Stock), payable in a lump sum. In addition, in the event of the
termination of Mr. Hakim’s employment due to his disability, he
will be entitled to a lump sum payment within 60 days of the
termination date equal to one year of his base salary (payable in
Stock), subject to his execution of a release. If the Company
terminates Mr. Hakim without cause, in addition to Basic
Termination Benefits, Mr. Hakim is entitled to his pro rata annual
bonus through the date of termination and an amount equal to two
years’ annual salary (all payable in Stock in a lump sum within 60
days of the termination date), and 12 months of continued health
insurance continuation under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”), at active
employee rates, subject to his execution of a release and his
continued compliance with applicable restrictive covenants.
Upon a termination of employment in connection with a Change of
Control (as defined below), in addition to Basic Termination
Benefits, Mr. Hakim is entitled to a pro rata annual bonus and
payment in an amount equal to two year’s base annual salary in
effect upon the Date of Termination, less applicable deductions,
and withholdings, payable in Stock in a lump sum within 60 days,
and two years of health care continuation benefits. In addition,
all outstanding unvested equity held by Mr. Hakim will then
vest.
Under the Hakim Employment Agreement:
“Cause” means (1) Mr. Hakim’s failure or refusal to perform the
services required under the agreement, (2) the material breach by
Mr. Hakim of any of the terms of the agreement, or (3) Mr. Hakim’s
conviction of a crime that results in imprisonment or involves
embezzlement, dishonest or activities injurious to the Company or
its reputation.
“Change of Control” means generally (1) an acquisition or merger
resulting in the holders of the Company’s voting stock immediately
prior to the transaction holding less than fifty (50%) percent of
the combined voting power after the transaction; (2) the sale of
all or substantially all of the assets or capital stock of the
Company; or (3) the securities of the Company representing greater
than fifty (50%) percent of the combined voting power of the
Company’s then outstanding voting securities are acquired in a
single transaction or series of related transactions.
“Disability” means that Mr. Hakim is prevented by illness, accident
or other disability (mental or physical) from performing the
essential functions of his position for one or more periods
cumulatively totaling 3 months during any consecutive 12 month
period.
Carter J. Ward
On November 12, 2009, the Company entered into an employment
agreement with Mr. Carter J. Ward (the “Ward Employment
Agreement”) which superseded his prior agreement with the
Company. Pursuant to the terms of the Ward Employment Agreement,
Mr. Ward continues as an at-will employee of the Company as its
Chief Financial Officer. Under the Ward Employment Agreement, Mr.
Ward was entitled to an initial base salary of $125,000 in
accordance with the Company’s payroll practices and an additional
$25,000 per annum paid by the issuance of restricted shares of
Common Stock. The Common Stock component of Mr. Ward’s compensation
is to be computed on a quarterly basis, with the number of shares
issued equal to the quotient of the quarterly amount due of $6,250
divided by the average daily closing price of the Company’s Common
Stock for the quarter just ended.
On April 1, 2020, Mr. Ward’s compensation was adjusted to include a
total compensation of $200,529, consisting of $170,529 being paid
in cash in accordance with the Company’s payroll practices and
$30,000 being paid by the issuance of restricted shares of Common
Stock.
On March 1, 2021, Mr. Ward’s compensation was adjusted to include a
total compensation of $208,543, consisting of $178,543 being paid
in accordance with the Company’s payroll practices and $30,000
being paid by the issuance of restricted shares of Common
Stock.
Mr. Ward subsequently resigned as CFO of the Company, effective May
14, 2021.
Douglas Plassche
On July 20, 2013, the Company entered into an employment agreement
with Mr. Douglas Plassche (the “Plassche Employment
Agreement”). Pursuant to the Plassche Employment Agreement, Mr.
Plassche serves as an at-will employee, in the position of Vice
President of Operations, commencing on August 12, 2013. The
Plassche Employment Agreement includes an initial base salary of
$205,000 being paid in accordance with the Company’s payroll
practices and an additional $25,000 being paid by the issuance of
restricted shares of Common Stock. The Common Stock component of
Mr. Plassche’s compensation is to be computed on an annual basis,
with the number of shares issued being equal to the quotient of the
annual amount due, divided by the average daily closing price of
the Company’s Common Stock for the calendar year just ended.
Mr. Plassche is also eligible for an annual bonus in cash and/or
equity-based awards for up to an equivalent of 30% of base salary,
with such annual bonus being granted based upon the achievement of
agreed milestones and at the discretion of the Company and its
Chief Executive Officer. In addition, pursuant to the Plassche
Employment Agreement, he was initially granted options to purchase
3,000,000 shares of Common Stock, at a price of $ 0.07 per share,
(the closing price of the Common Stock on the date of the Plassche
Employment Agreement). The options were issued pursuant to the 2004
Employee Stock Option Plan and vested over a period of three years
with the vesting period commencing one year from the date of
issuance.
Mr. Plassche’s employment is terminable by either party. If the
Company terminates Mr. Plassche without cause, Mr. Plassche is
entitled to an amount equal to six months of base annual salary in
effect upon the date of termination.
Throughout his tenure, Mr. Plassche’s compensation was increased
from time to time by the Board.
On June 21, 2019, Mr. Plassche entered into a retention agreement
with the Company (the “Plassche Retention Agreement”), as an in
incentive for his continued employment and cooperating during a
transitional period for the Company. Pursuant to the Plassche
Retention Agreement, Mr. Plassche is entitled to a lump sum
retention payment of $253,552 as of June 30, 2021, provided Mr.
Plassche remains continuously employed by the Company through such
date. In addition, Mr. Plassche was paid a one-time $30,000
relocation payment during fiscal year 2020. Under the Plassche
Retention Agreement, the Company also guaranteed Mr. Plassche a
salary of $253,552 and an annual bonus of $75,000 during the two
year period following the agreement date.
On April 1, 2020, Mr. Plassche’s compensation was adjusted to
include a total base compensation package of $272,530, consisting
of $247,530 being paid in accordance with the Company’s payroll
practices and $25,000 being paid by the issuance of restricted
shares of Common Stock.
On March 1, 2021, Mr. Plassche’s compensation was adjusted to
include a total base compensation package of $278,606, consisting
of $253,606 being paid in accordance with the Company’s payroll
practices and $25,000 being paid by the issuance of restricted
shares of Common Stock.
Potential Payments Upon Termination or Change of Control
Messrs. Hakim and Plassche are entitled to certain benefits upon a
termination event (and in the case of Mr. Hakim, in connection with
a change of control), as described in the section entitled
“Agreements with Named Executive Officers” above. We do not
presently provide the Named Executive Officers with any plan or
arrangement, other than those that may be contained in the
employment contracts disclosed above, in connection with any
termination, including, without limitation, through retirement,
resignation, severance, or constructive termination (including a
change in responsibilities) of such Named Executive Officer’s
employment with the Company.
As part of the Company’s efforts to ensure the retention and
continuity of key employees, officers, and directors in the event
of a change of control of the ownership of the Company, unless
otherwise stated in applicable employment contracts, key executives
would receive an amount not to exceed twelve months of such
executive’s salary, and certain Directors and managers would
receive an amount equal to six months of such Director’s or
manager’s fees or salaries, as applicable. In addition, any
outstanding and unvested options would immediately vest, in the
event of a change of control.
Hedging Policy
We do not permit the Named Executive Officers to “hedge” ownership
by engaging in short sales or trading in any options contracts
involving securities.
Summary Compensation Table
Name
and Principal Position |
|
Fiscal
Year |
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Nasrat
Hakim, President, Chief Executive Officer and Chairman of the Board
of Directors |
|
|
|
|
|
|
2021 |
|
|
|
500,000 |
(1) |
|
|
500,000 |
(2) |
|
|
— |
|
|
|
78,000 |
(3) |
|
|
1,078,000 |
|
|
|
|
2020 |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
— |
|
|
|
78,000 |
|
|
|
1,078,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter
J. Ward, Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
201,197 |
(4) |
|
|
25,000 |
(5) |
|
|
— |
|
|
|
— |
|
|
|
226,197 |
|
|
|
|
2020 |
|
|
|
192,816 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
222,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Plassche, Executive Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
267,536 |
(6) |
|
|
75,000 |
(7) |
|
|
— |
|
|
|
6,000 |
(8) |
|
|
348,536 |
|
|
|
|
2020 |
|
|
|
253,552 |
|
|
|
75,000 |
|
|
|
— |
|
|
|
36,000 |
|
|
|
364,552 |
|
|
(1) |
Represents
salary earned by Mr. Hakim pursuant to the Hakim Employment
Agreement for Fiscal 2021, with such amounts to be paid via the
issuance of Common Stock in lieu of cash. |
|
No shares of Common Stock have been
issued to Mr. Hakim in payment of salaries due for Fiscal 2021. A
total of 7,388,707 shares of Common Stock are due and owing to Mr.
Hakim in payment of salaries earned during Fiscal 2021. A total of
6,305,856 shares of Common Stock are due and owing to Mr. Hakim in
payment of salaries earned during Fiscal 2020. In aggregate, a
total of $2,125,000 is accrued, due and owing to Mr. Hakim for
salaries earned during Fiscal 2021, Fiscal 2020, and the thirty-six
months ended March 31, 2019, but not paid. This amount is to be
paid via the issuance of 24,342,733 shares of Common Stock, with
the date of such issuance of shares of Common Stock being
undetermined. |
(2) |
The bonus earned
by Mr. Hakim for fiscal 2021. |
|
Bonuses earned by Mr. Hakim during Fiscal 2021 were paid in
accordance with the Company’s payroll practices during Fiscal
2021.
Mr. Hakim was also paid $437,500 during Fiscal 2021 for bonuses
earned and accrued during the twelve months ended March 31, 2018,
and not paid previously. Mr. Hakim was also paid $312,500 during
Fiscal 2021 for bonuses earned and accrued during the twelve months
ended March 31, 2019, and not previously paid. Mr. Hakim
accordingly was paid a total of $1,250,000 during Fiscal 2021, with
such amount representing bonuses earned during Fiscal 2021 and the
twenty-four month period ending March 31, 2019, and not previously
paid.
A total of $125,000 of bonus earned by Mr. Hakim during Fiscal 2020
was paid in accordance with the Company’s payroll practices. A
total of $375,000 of bonus earned by Mr. Hakim during Fiscal 2020
was accrued and is owing to Mr. Hakim.
As of March 31, 2021, Mr. Hakim is owed $562,500 in bonuses earned
during the twenty-four-month period ending March 31, 2020. Pursuant
to the Hakim Employment Agreement, these bonuses are to be paid in
accordance with the Company’s payroll practices.
|
(3) |
Represents
$18,000 amounts paid for auto allowance and $60,000 for housing
allowances. |
(4) |
Represents
salaries earned by Mr. Ward pursuant to the Ward Employment
Agreement. |
|
Fiscal 2021 salaries consist of $171,197 being paid in accordance
with the Company’s payroll practices and $30,000 being accrued,
due, owing and to be paid via the issuance of 443,355 shares of
Common Stock.
In aggregate, salaries totaling $97,500 are accrued, due and owing
to Mr. Ward for salaries earned and not paid during Fiscal 2021,
Fiscal 2020 and the twenty-four month period ended March 31, 2019,
with such accrued amount being paid via the issuance of 1,218,536
shares of Common Stock during May 2021.
|
(5) |
Represents
the bonus earned by Mr. Ward for fiscal 2021. |
(6) |
Represents
salaries earned by Mr. Plassche pursuant to the Plassche Employment
Agreement. |
|
Fiscal 2021 salaries consist of $242,536 being paid in accordance
with the Company’s payroll practices and $25,000 being accrued,
due, owing and to be paid via the issuance of 369,462 shares of
Common Stock.
In aggregate, salaries totaling $25,000 are accrued, due and owing
to Mr. Plassche for salaries earned and not paid during Fiscal
2021, with such accrued amount to be paid via the issuance of
369,462 shares of Common Stock, with the date of such issuance of
shares of Common Stock being undetermined.
|
(7) |
Represents
the bonus earned by Mr. Plassche for fiscal 2021 pursuant to the
Plassche Employment Agreement. |
(8) |
Represents
amounts paid for auto allowances. |
Outstanding Equity Awards at March 31, 2021
|
|
Option Awards |
Name |
|
Number of
securities
underlying
unexercised
options
Exercisable
(#)
|
|
|
Number of
securities
underlying
unexercised
options
Unexercisable
(#)
|
|
|
Equity Incentive Plan
Awards:
Number of securities
underlying unexercised
unearned options
(#) |
|
|
Options
Exercise
Price
($) |
|
|
Option
Expiration
Date |
Nasrat Hakim |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter Ward |
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
0.12 |
|
|
6/19/2022 |
Douglas Plassche |
|
|
3,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
0.07 |
|
|
7/23/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Compensation
The following table sets forth information concerning director
compensation for the year ended March 31, 2021:
Name |
|
Fees
Earned or
Paid In
Cash (1)
($) |
|
|
Stock
Awards (1)
($) |
|
|
Option
Awards
($) |
|
|
|
|
|
|
|
|
All Other
Compensation
($) |
|
|
Total
($) |
|
Barry Dash |
|
|
10,000 |
(2) |
|
|
20,000 |
(3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,000 |
|
Jeffrey Whitnell |
|
|
10,000 |
(2) |
|
|
20,000 |
(3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,000 |
|
Davis Caskey |
|
|
10,000 |
(2) |
|
|
20,000 |
(3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,000 |
|
(1) |
Please refer to the section below titled
“Director Fee Compensation” for details on the Company’s
director fee compensation policy. No directors held unexercised or
unvested stock awards as of March 31, 2021. |
(2) |
Amounts represent Director fees earned during the
fiscal year ended March 31, 2021 which are to be paid in cash.
These fees were accrued and unpaid as of March 31, 2021, with a
payment date being undetermined. In aggregate, Directors fees
totaling $30,000 ($10,000 for each of the Company’s three
non-employee Directors) is accrued, due and owing for Director fees
earned during Fiscal 2021. This amount is to be paid in cash, with
the date of such payment being undetermined. |
(3) |
Director
equity compensation for the fiscal year ended March 31, 2021
consists of an entitlement to 295,570 shares of Common Stock for
each of Dr. Dash, Mr. Whitnell and Mr. Caskey each receiving
295,570 shares of Common Stock. Payment of this amount due via
share issuance will be made at an as yet undetermined
date. |
Director Fee Compensation
The Company’s policy regarding director fees is as follows: (i)
Directors who are employees or consultants of the Company (and/or
any of its subsidiaries) receive no additional remuneration for
serving as directors or members of committees of the Board; (ii)
all Directors are entitled to reimbursement for out-of-pocket
expenses incurred by them in connection with their attendance at
the Board or committee meetings; (iii) Directors who are not
employees or consultants of the Company (and/or any of its
subsidiaries) receive a $30,000 annual retainer fee, with $20,000
of this amount being paid via the issuance of restricted Common
Stock, and the remaining $10,000 being paid in cash; (iv) Directors
and the Chairman do not receive any additional compensation for
attendance at or chairing of any meetings.
Director Equity Compensation
As described above, members of the Board of Directors and the
Chairman are paid a portion of their annual retainer fees via the
issuance of restricted shares of Common Stock of the Company. The
number of shares to be issued to each Director and the Chairman is
equal to the quotient of the quarterly amount due to each Director
and the Chairman, respectively, divided by the average daily
closing price of the Company’s stock for the quarter just
ended.
Members of the Board of Directors during the fiscal year ended
March 31, 2021 did not receive any options or equity compensation
for serving as directors other than shares of Common Stock earned
in lieu of cash in relation to Director fees due.
Other
The Company’s Articles of Incorporation provide for the
indemnification of each of the Company’s directors to the fullest
extent permitted under Nevada General Corporation Law.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth certain information, as of June 7,
2021 (except as otherwise indicated), regarding beneficial
ownership of our Common Stock by (i) each person who is known by us
to own beneficially more than 5% of each such class, (ii) each of
our directors, (iii) each of our executive officers and (iv) all
our directors and executive officers as a group. As of June 7,
2021, we had 1,009,176,752 shares of Common Stock outstanding
(exclusive of 0.1 million treasury shares). On any matter presented
to the holders of our Common Stock for their action or
consideration at any meeting of our Shareholders, each share of
Common Stock entitles the holder to one vote.
As used in the table below and elsewhere in this report, the term
beneficial ownership with respect to a security consists of sole or
shared voting power, including the power to vote or direct the
vote, and/or sole or shared investment power, including the power
to dispose or direct the disposition, with respect to the security
through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s) during the 60
days immediately following June 7, 2021. Except as otherwise
indicated, the Shareholders listed in the table have sole voting
and investment powers with respect to the shares indicated.
Name and Address of Beneficial Owner of Common Stock |
|
Common
Stock
|
|
|
Percent (%) of
Voting Securities
Beneficially
Owned |
|
Nasrat Hakim, President, Chief Executive Officer and Chairman of
the Board of Directors* |
|
|
273,166,287 |
(1) |
|
|
24.4 |
% |
|
|
|
|
|
|
|
|
|
Barry Dash, Director* |
|
|
2,228,362 |
(2) |
|
|
** |
% |
|
|
|
|
|
|
|
|
|
Jeffrey Whitnell, Director* |
|
|
2,179,827 |
(3) |
|
|
** |
% |
|
|
|
|
|
|
|
|
|
Davis Caskey, Director* |
|
|
1,042,243 |
(4) |
|
|
** |
% |
|
|
|
|
|
|
|
|
|
Carter J. Ward, Former Chief Financial
Officer |
|
|
5,185,023 |
(5) |
|
|
** |
% |
|
|
|
|
|
|
|
|
|
Douglas Plassche, Executive Vice
President * |
|
|
4,503,394 |
(6) |
|
|
** |
% |
|
|
|
|
|
|
|
|
|
All Directors and
Officers as a group |
|
|
283,120,113 |
(7) |
|
|
25.3 |
% |
* |
The
address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue,
Northvale, NJ 07647. |
** |
Less
than 1% |
(1) |
Includes
169,814,882 shares of Common Stock held and 24,342,744 shares of
Common Stock due and owing to Mr. Hakim as of March 31, 2021 (the
latest practicable date) for compensation earned pursuant to Mr.
Hakim’s employment agreement with the Company and 79,008,661 shares
of Common Stock issuable upon cash exercise of the Series J
Warrants with an exercise price of $0.1521 per share. |
(2) |
Includes 1,932,792 shares of Common Stock held
and 295,570 shares of Common Stock due and owing to Dr. Dash as of
March 31, 2021 (the latest practicable date) for Directors fees
accrued as of such date. |
(3) |
Includes 1,884,257 shares of Common Stock held
and 295,570 shares of Common Stock due and owing to Mr. Whitnell as
of March 31, 2021 (the latest practicable date) for Directors fees
accrued as of such date. |
(4) |
Includes 746,673 shares of Common Stock held and
295,570 shares of Common Stock due and owing to Mr. Caskey as of
March 31, 2021 (the latest practicable date) Date for Directors
fees accrued as of such date. |
(5) |
Mr. Ward resigned on May 14, 2021. Address is c/o Enveric
Biosciences Inc., 4851 Tamiami Trail N, Naples FL 34103.
Includes 3,771,919 shares of Common Stock held and 1,263,104 shares
of Common Stock due and owing to Mr. Ward as of May 14, 2021. for
salaries earned pursuant to Mr. Ward’s employment agreement with
the Company, with such shares being issued to Mr. Ward during May
2021, and vested options to purchase 150,000 shares of Common
Stock.
|
(6) |
Includes 1,133,932 shares of Common Stock held
369,462 shares of Common Stock due and owing to Mr. Plassche as of
March 31, 2021 (the latest practicable date) for salaries earned
pursuant to Mr. Plassche’s employment agreement with the Company,
and shares of Common Stock issuable upon cash exercise of vested
options to purchase 3,000,000 shares of Common Stock. |
(7) |
Relates only to current directors and officers.
Includes 175,512,536 shares of Common Stock held, 25,598,916 shares
of Common Stock due and owing as of March 31, 2021 (the latest
practicable date) for director’s fees and salaries accrued as of
such date, 3,000,000 shares of Common Stock issuable upon cash
exercise of vested options and 79,008,661 shares of Common Stock
issuable upon cash exercise of warrants at an exercise price of
$0.1521 per share of Common Stock. |
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Related Person Transactions
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. Mikah Pharmaceuticals
was founded in 2009 by Nasrat Hakim.
Director Independence
All related person transactions are reviewed and, as appropriate,
may be approved or ratified by the Board of Directors. If a
Director is involved in the transaction, he or she may not
participate in any review, approval, or ratification of such
transaction. Related person transactions are approved by the Board
of Directors only if, based on all of the facts and circumstances,
they are in, or not inconsistent with, our best interests and the
best interests of our stockholders, as the Board of Directors
determines in good faith. The Board of Directors takes into
account, among other factors it deems appropriate, whether the
transaction is on terms generally available to an unaffiliated
third-party under the same or similar circumstances and the extent
of the related person’s interest in the transaction. The Board of
Directors may also impose such conditions as it deems necessary and
appropriate on us or the related person in connection with the
transaction.
In the case of a transaction presented to the Board of Directors
for ratification, the Board of Directors may ratify the transaction
or determine whether rescission of the transaction is
appropriate.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The Company’s independent registered public accounting firm for the
fiscal year ending March 31, 2022 is Buchbinder Tunick &
Company LLP (“Buchbinder”).
The following table presents fees, including reimbursements for
expenses, for professional audit services rendered by Buchbinder,
for the audits of our financial statements and interim reviews of
our quarterly financial statements.
|
|
Fiscal
2021 |
|
|
Fiscal
2020 |
|
Audit Fees |
|
$ |
120,000 |
|
|
$ |
120,000 |
|
Audit-Related Fees |
|
|
— |
|
|
|
— |
|
Tax Fees |
|
|
8,000 |
|
|
|
8,000 |
|
Audit Fees
Represents fees for professional services provided for the audit of
our annual financial statements, services that are performed to
comply with generally accepted auditing standards, and review of
our financial statements included in our quarterly reports and
services in connection with statutory and regulatory filings.
Audit-Related Fees
Represents the fees for assurance and related services that were
reasonably related to the performance of the audit or review of our
financial statements.
Tax Fees
Represents preparation of Federal, State and Local income tax
returns.
The Audit Committee has determined that Buchbinder’s rendering of
these audit-related services was compatible with maintaining
auditor’s independence. The Board of Directors considered
Buchbinder to be well qualified to serve as our independent public
accountants. The Committee also pre-approved the charges for
services performed in Fiscal 2021.
Pre-Approval Procedures
The Audit Committee pre-approves all audit and tax services and the
terms thereof (which may include providing comfort letters in
connection with securities underwriting) and non-audit services
(other than non-audit services prohibited under Section 10A(g) of
the Exchange Act or the applicable rules of the SEC or the Public
Company Accounting Oversight Board) to be provided to us by the
independent auditor; provided, however, the pre-approval
requirement is waived with respect to the provisions of non-audit
services for us if the “de minimus” provisions of Section 10A
(i)(1)(B) of the Exchange Act are satisfied. This authority to
pre-approve non-audit services may be delegated to one or more
members of the Audit Committee, who shall present all decisions to
pre-approve an activity to the full Audit Committee at its first
meeting following such decision.
PART IV
ITEM 15. EXHIBITS, FINANCIAL
STATEMENTS AND SCHEDULES
(a) |
The following are filed as part of this Annual
Report on Form 10-K |
|
|
|
|
(1) |
The
financial statements and schedules required to be filed by Item 8
of this Annual Report on Form 10-K and listed in the Index to
Consolidated Financial Statements. |
|
|
|
|
(2) |
The
Exhibits required by Item 601 of Regulation S-K and listed below in
the “Index to Exhibits required by Item 601 of Regulation
S-K.” |
|
|
|
(b) |
The Exhibits are filed with or incorporated by
reference in this Annual Report on Form 10-K |
|
|
|
(c) |
None |
Index to Exhibits required by Item 601 of Regulation
S-K.
Exhibit
No. |
|
Description |
|
|
|
3.1(a)
|
|
Articles
of Incorporation of Elite-Nevada, incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on
January 9, 2012. |
|
|
|
3.1(b)
|
|
Certificate
of Designations of the Series G Convertible Preferred Stock as
filed with the Secretary of State of the State of Nevada on April
18, 2013, incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K, dated April 18, 2013 and filed with the SEC on
April 22, 2013. |
|
|
|
3.1(c)
|
|
Certificate
of Designation of the Series H Junior Participating Preferred
Stock, incorporated by reference to Exhibit 2 (contained in Exhibit
1) to the Registration Statement on Form 8-A filed with the SEC on
November 15, 2013. |
|
|
|
3.1(d)
|
|
Certificate
of Designations of the Series I Convertible Preferred Stock as
filed with the Secretary of State of the State of Nevada on
February 6, 2014, incorporated by reference to Exhibit 3.1 to the
Current Report on Form 8-K, dated February 6, 2014 and filed with
the SEC on February 7, 2014. |
|
|
|
3.1(e)
|
|
Certificate
of Designations of the Series J Convertible Preferred Stock as
filed with the Secretary of State of the State of Nevada on May 3,
2017, incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K, dated April 28, 2017 and filed with the SEC on
April 28, 2017. |
|
|
|
3.1(f)
|
|
Certificate
of Amendment to Articles of Incorporation, incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K, dated
June 24, 2020 and filed with the SEC on June 24,
2020. |
|
|
|
3.2(a)
|
|
Amended
and Restated By-Laws of the Company, incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K dated April 23, 2020
and filed with the SEC on April 23, 2020. |
|
|
|
4.1
|
|
Form
of specimen certificate for Series G Convertible Preferred Stock of
the Company, incorporated by reference to Exhibit 4.2 to the
Current Report on Form 8-K, dated April 18, 2013 and filed with the
SEC on April 22, 2013. |
|
|
|
4.2
|
|
Form
of specimen certificate for Series I Convertible Preferred Stock of
the Company, incorporated by reference to Exhibit 4.2 to the
Current Report on Form 8-K, dated February 6, 2014 and filed with
the SEC on February 7, 2014. |
|
|
|
4.3
|
|
Rights
Agreement, dated as of November 15, 2013, between the Company and
American Stock Transfer & Trust Company, LLC., incorporated by
reference to Exhibit 1 to the Registration Statement on Form 8-A
filed with the SEC on November 15, 2013. |
|
|
|
4.4
|
|
Form
of Series H Preferred Stock Certificate, incorporated by reference
to Exhibit 1 to the Registration Statement on Form 8-A filed with
the SEC on November 15, 2013. |
|
|
|
4.5
|
|
Warrant
to purchase shares of Common Stock issued to Nasrat Hakim dated
April 28, 2017 incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K, dated April 28, 2017, and filed with
the SEC on April 28, 2017. |
4.6 |
|
Description of Common Stock, incorporated by
reference to Exhibit 4.6 to the Report 10-K filed in June
2020. |
|
|
|
10.1 |
|
Elite
Pharmaceuticals, Inc. 2014 Equity Incentive Plan, incorporated by
reference to Appendix B to the Company’s Definitive Proxy Statement
for its Annual Meeting of Shareholders, filed with the SEC on April
3, 2014. |
|
|
|
10.2 |
|
Form of
Confidentiality Agreement (corporate), incorporated by reference to
Exhibit 10.7 to the Form SB-2. |
|
|
|
10.3 |
|
Form of
Confidentiality Agreement (employee), incorporated by reference to
Exhibit 10.8 to the Form SB-2. |
|
|
|
10.4 |
|
Loan
Agreement, dated as of August 15, 2005, between New Jersey Economic
Development Authority (“NJEDA”) and the Company, incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K, dated
August 31, 2005 and filed with the SEC on September 6,
2005. |
|
|
|
10.5 |
|
Series
A Note in the aggregate principal amount of $3,660,000.00 payable
to the order of the NJEDA, incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K, dated August 31, 2005 and
filed with the SEC on September 6, 2005. |
|
|
|
10.6 |
|
Series
B Note in the aggregate principal amount of $495,000.00 payable to
the order of the NJEDA, incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K, dated August 31, 2005 and filed
with the SEC on September 6, 2005. |
|
|
|
10.7 |
|
Mortgage from the Company to the NJEDA,
incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K, dated August 31, 2005 and filed with the SEC on September
6, 2005. |
|
|
|
10.8 |
|
Indenture between NJEDA and the Bank of New York
as Trustee, dated as of August 15, 2005, incorporated by reference
to Exhibit 10.5 to the Current Report on Form 8-K, dated August 31,
2005 and filed with the SEC on September 6, 2005. |
|
|
|
10.13 |
|
Employment Agreement, dated as of November 13,
2009, by and between the Company and Carter J. Ward, incorporated
by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q,
for the period ending September 30, 2009 and filed with the SEC on
November 16, 2009.+ |
|
|
|
10.15 |
|
License
Agreement, dated as of September 10, 2010, by and among Precision
Dose Inc. and the Company, incorporated by reference to Exhibit
10.8 to the Quarterly Report on Form 10-Q, for the period ended
September 30, 2010 and filed with the SEC on November 15, 2010
(Confidential Treatment granted with respect to portions of the
Agreement). |
|
|
|
10.16 |
|
Manufacturing and Supply Agreement, dated as of
September 10, 2010, by and among Precision Dose Inc. and the
Company, incorporated by reference to Exhibit 10.9 to the Quarterly
Report on Form 10-Q, for the period ended September 30, 2010 and
filed with the SEC on November 15, 2010 (Confidential Treatment
granted with respect to portions of the Agreement). |
|
|
|
10.17 |
|
August
1, 2013 Employment Agreement with Nasrat Hakim, incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K, dated
August 1, 2013 and filed with the SEC on August 5,
2013.+ |
|
|
|
10.18 |
|
August
1, 2013 Mikah LLC Asset Purchase Agreement, incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K/A,
dated August 1, 2013 and filed with the SEC on August 30, 2018.
(Confidential Treatment granted with respect to portions of the
Agreement). |
|
|
|
10.19 |
|
August
1, 2013 Secured Convertible Note from the Company to Mikah Pharma
LLC., incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, dated August 1, 2013 and filed with the SEC on
August 5, 2013. |
|
|
|
10.20 |
|
August
1, 2013 Security Agreement from the Company to Mikah Pharma LLC.,
incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K, dated August 1, 2013 and filed with the SEC on August 5,
2013. |
|
|
|
10.21 |
|
October
15, 2013 Hakim Credit Line Agreement, incorporated by reference to
Exhibit 10.16 to the Quarterly Report on Form 10-Q for the period
ended September 30, 2013. |
|
|
|
10.22 |
|
October
2, 2013 Manufacturing and Licensing Agreement with Epic Pharma LLC,
incorporated by reference to Exhibit 10.17 to the Amended Quarterly
Report on Form 10-Q/A for the period ended September 30, 2013 and
filed with the SEC on April 25, 2014. Confidential Treatment
granted with respect to portions of the Agreement. |
|
|
|
10.23 |
|
February 7, 2014 Amendment to Secured Convertible
Note from the Company to Mikah, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, dated February 7,
2014 and filed with the SEC on February 7, 2014. |
|
|
|
10.24 |
|
Employment Agreement with Dr. G.
Kenneth Smith, dated October 20, 2014, incorporated by reference to
Exhibit 10.82 to the Quarterly Report on Form 10-Q for the period
ended September 30, 2014 and filed with the SEC on November 14,
2014.+ |
|
|
|
10.25 |
|
January 28, 2015 First Amendment to
the Loan Agreement between Nasrat Hakim and Elite Pharmaceuticals
dated October 15, 2013, incorporated by reference to Exhibit 10.83
to the Quarterly Report on Form 10-Q for the period ended December
31, 2014 and filed with the SEC on February 17,
2015. |
|
|
|
10.26 |
|
January 28, 2015 Termination of
Development and License Agreement for Mikah-001 between Elite
Pharmaceuticals, Inc. and Mikah Pharma LLC and Transfer of Payment,
incorporated by reference to Exhibit 10.84 to the Quarterly Report
on Form 10-Q for the period ended December 31, 2014 and filed with
the SEC on February 17, 2015. |
|
|
|
10.28 |
|
Amendment No. 1 to Hakim Employment
Agreement, incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on January 29,
2016. |
|
|
|
10.29 |
|
August 24, 2016 Master Development
and License Agreement between Elite and SunGen Pharma LLC.
incorporated by reference to Exhibit 10.44 to the Quarterly Report
on Form 10-Q for the period ended September 30, 2016 and filed with
the SEC on November 9, 2016. (Confidential Treatment granted with
respect to portions of the Agreement). |
|
|
|
10.30 |
|
Purchase Agreement between the Company and
Lincoln Park Capital LLC dated July 8, 2020, incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K, dated
July 9, 2020 and filed with the SEC on July 9,
2020. |
|
|
|
10.31 |
|
Registration Rights Agreement between
the Company and Lincoln Park Capital LLC dated July 8, 2020,
incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, dated July 9, 2020 and filed with the SEC on July 9,
2020. |
|
|
|
10.33 |
|
May 2017 Trimipramine Acquisition
Agreement from Mikah Pharma, incorporated by reference to Exhibit
10.50 to the Annual Report on Form 10-K, for the period ended March
31, 2017 and filed with the SEC on June 14, 2017. |
|
|
|
10.34 |
|
May 2017 Secured Promissory Note from
the Company to Mikah Pharma, incorporated by reference to Exhibit
10.51 to the Annual Report on Form 10-K, for the period ended March
31, 2017 and filed with the SEC on June 14, 2017. |
|
|
|
10.35 |
|
May 2017 Security Agreement between
the Company to Mikah Pharma, incorporated by reference to Exhibit
10.52 to the Annual Report on Form 10-K, for the period ended March
31, 2017 and filed with the SEC on June 14, 2017. |
|
|
|
10.36 |
|
May 2017 Assignment of Supply and
Distribution Agreement between Dr. Reddy’s Laboratories and Mikah
Pharma, incorporated by reference to Exhibit 10.53 to the Annual
Report on Form 10-K, for the period ended March 31, 2017 and filed
with the SEC on June 14, 2017. |
|
|
|
10.37 |
|
May 2017 Assignment of Manufacturing
and Supply Agreement between Epic and Mikah Pharma, incorporated by
reference to Exhibit 10.54 to the Annual Report on Form 10-K, for
the period ended March 31, 2017 and filed with the SEC on June 14,
2017. |
|
|
|
10.38 |
|
Supply and Distribution Agreement
between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by
reference to Exhibit 10.55 to the Annual Report on Form 10-K, for
the period ended March 31, 2017 and filed with the SEC on June 14,
2017. (Confidential Treatment granted with respect to portions of
the Agreement). |
|
|
|
10.39 |
|
Manufacturing and Supply Agreement
between Epic and Mikah Pharma, incorporated by reference to Exhibit
10.56 to the Annual Report on Form 10-K, for the period ended March
31, 2017 and filed with the SEC on June 14, 2017. (Confidential
Treatment granted with respect to portions of the
Agreement). |
|
|
|
10.40 |
|
Master Development and License
Agreement For Products Between Elite Pharmaceuticals, Inc. And
SunGen dated July 6, 2017, incorporated by reference to Exhibit
10.57 to the Quarterly Report on Form 10-Q for the period ended
June 30, 2017 and filed with the SEC on August 9, 2017.
(Confidential Treatment granted with respect to portions of the
Agreement). |
|
|
|
10.41 |
|
First Amendment to Master Development
And License Agreement For Products Between Elite Pharmaceuticals,
Inc. and SunGen Pharma, LLC, incorporated by reference to Exhibit
10.59 to the Quarterly Report on Form 10-Q for the period ended
June 30, 2017 and filed with the SEC on August 9, 2017.
(Confidential Treatment granted with respect to portions of the
Agreement). |
|
|
|
10.42 |
|
Second Amendment to Master
Development And License Agreement For Products Between Elite
Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by
reference to Exhibit 10.58 to the Quarterly Report on Form 10-Q for
the period ended June 30, 2017 and filed with the SEC on August 9,
2017. (Confidential Treatment granted with respect to portions of
the Agreement). |
10.45 |
|
License, Supply And Distribution Agreement
effective March 6, 2019 by and between Elite Pharmaceuticals, Inc.,
and Elite Laboratories, Inc. and Lannett Company, Inc., USA,
incorporated by reference to Exhibit 10.45 to the Quarterly Report
on Form 10-Q, for the period ended December 31, 2019 and filed with
the SEC on February 10, 2020. (Portions of this Agreement have been
redacted in compliance with Regulation S-K Item
601(b)(10)). |
|
|
|
10.46 |
|
License, Supply and Distribution Agreement
effective April 9, 2019 by and between Elite Pharmaceuticals, Inc.,
and Elite Laboratories, Inc. and Lannett Company, Inc., USA,
incorporated by reference to Exhibit 10.49 to the Annual Report on
Form 10-K for the period ended March 31, 2019 and filed with the
SEC on June 21, 2019 (portions of this Agreement have been redacted
in compliance with Regulation S-K Item 601(b)(10)). |
|
|
|
10.47 |
|
License, Supply and Distribution Agreement
effective March 6, 2019 by and between Elite Pharmaceuticals, Inc.,
and Elite Laboratories, Inc. and Lannett Company, Inc., USA,
incorporated by reference to Exhibit 10.50 to the Annual Report on
Form 10-K for the period ended March 31, 2019 and filed with the
SEC on June 21, 2019 (portions of this Agreement have been redacted
in compliance with Regulation S-K Item 601(b)(10)). |
|
|
|
10.48 |
|
Development Agreement effective December 3, 2018
by and between Mikah Pharma LLC and Elite Laboratories, Inc.,
incorporated by reference to Exhibit 10.51 to the Annual Report on
Form 10-K for the period ended March 31, 2019 and filed with the
SEC on June 21, 2019 (portions of this Agreement have been redacted
in compliance with Regulation S-K Item 601(b)(10)). |
|
|
|
10.49 |
|
Asset
Purchase Agreement dated November 13, 2019 by and between the
Company and Nostrum Laboratories Inc. , incorporated by reference
to Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the
period ended December 31, 2019 and filed with the SEC on February
10, 2020. |
|
|
|
10.50 |
|
January
2, 2020 Amendment to the Glenmark Pharmaceuticals Inc. USA License,
Supply and Distribution Agreement, incorporated by reference to
Exhibit 10.50 to the Quarterly Report on Form 10-Q, for the period
ended December 31, 2019 and filed with the SEC on February 10,
2020. (Portions of this Agreement have been redacted in compliance
with Regulation S-K Item 601(b)(10)). |
|
|
|
10.51 |
|
Asset
Purchase Agreement executed January 16, 2020 by and between the
Company and Nostrum Laboratories Inc., incorporated by reference to
Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the period
ended December 31, 2019 and filed with the SEC on February 10,
2020. |
|
|
|
10.52 |
|
Employment Agreement with Douglas Plassche
*+ |
|
|
|
10.53 |
|
June 21, 2019 Retention Agreement with Douglas
Plassche.*+ |
|
|
|
10.54 |
|
July 29, 2019 Amendment To The License, Supply
And Distribution Agreement Between Elite Pharmaceuticals,
Inc./Elite Laboratories, Inc. And Lannett Company, Inc. (Portions
of this Agreement have been redacted in compliance with Regulation
S-K Item 601(b)(10)).* |
|
|
|
21 |
|
Subsidiaries of the Company, incorporated by
reference to Exhibit 21 to the Annual Report on Form 10-K, for the
period ended March 31, 2019 and filed with the SEC on June 21,
2019. |
|
|
|
** |
Furnished herewith. |
|
|
+ |
Indicates
management contract or compensatory plan or
arrangement. |
ITEM 16. FORM 10-K
SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
ELITE
PHARMACEUTICALS, INC. |
|
|
|
|
By: |
/s/ Nasrat Hakim |
|
|
Nasrat Hakim |
|
|
Chief Executive
Officer |
|
|
|
|
Dated: June 14,
2021 |
|
|
|
|
By: |
/s/ Marc Bregman |
|
|
Marc Bregman |
|
|
Chief Financial
Officer |
|
|
|
|
Dated: June 14,
2021 |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Nasrat Hakim |
|
Chief
Executive Officer, President and Chairman of the |
|
June
14, 2021 |
|
|
Board
of Directors (Principal Executive Officer) |
|
|
|
|
|
|
|
/s/
Marc Bregman |
|
Chief
Financial Officer, Treasurer, Secretary (Principal |
|
June
14, 2021 |
|
|
Financial Officer and
Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/
Barry Dash |
|
Director |
|
June
14, 2021 |
|
|
|
|
|
/s/
Jeffrey Whitnell |
|
Director |
|
June
14, 2021 |
|
|
|
|
|
/s/
Davis Caskey |
|
Director |
|
June
14, 2021 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2021 AND 2020
TABLE OF CONTENTS
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Elite Pharmaceuticals, Inc., and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Elite Pharmaceuticals, Inc. and Subsidiary (the Company) as of
March 31, 2021 and 2020, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the
years in the two-year period ended March 31, 2021, and the related
notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of March 31, 2021 and 2020 and the results of its
operations and its cash flows for each of the years in the two-year
period ended March 31, 2021 in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising
from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee
and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
the critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or
disclosures to which they relate.
Indefinite-Lived Intangible Assets Impairment Assessments of ANDAs
and Patents — Refer to Notes 1, 4 and 15 to the financial
statements
Critical Audit Matter Description
As of March 31, 2021, the Company has capitalized costs of
$6,168,351 for ANDAs and $465,684 for patents. The Company
evaluates its intangible assets for impairment annually during the
fourth quarter in accordance with ASC Topic 350, Intangibles
Goodwill and Other, and between annual evaluations if events occur
or circumstances change that would more likely than not reduce the
fair value of the assets carrying amount.
Management evaluates qualitative factors to determine whether it is
more likely than not that the fair value of the intangible assets
is less than its carrying amount. The qualitative factors
management considers include, but are not limited to, the current
project status, expected future cash flows, decline in the
Company’s stock price, legal and regulatory factors and industry
and market considerations.
We identified the impairment evaluation of the intangibles as a
critical audit matter because of the significant judgements made by
management to estimate the fair value of the intangible assets.
Our audit procedures related to impairment of indefinite lived
intangible assets included review of management’s analysis and
testing the significant assumptions used by management.
/s/ Buchbinder Tunick & Company LLP
Buchbinder Tunick & Company LLP
We have served as the Company’s auditor since 2010.
Little Falls, New Jersey 07424
June 14, 2021,
ELITE PHARMACEUTICALS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AUDITED)
|
|
March 31,
2021 |
|
|
March 31,
2020 |
|
ASSETS |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash |
|
$ |
3,192,768 |
|
|
$ |
1,131,728 |
|
Accounts receivable, net of allowance for doubtful accounts of
$-0-, respectively |
|
|
3,496,376 |
|
|
|
4,106,846 |
|
Inventory |
|
|
5,012,902 |
|
|
|
4,142,472 |
|
Prepaid expenses and other current assets |
|
|
492,621 |
|
|
|
870,233 |
|
Total current assets |
|
|
12,194,667 |
|
|
|
10,251,279 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of
$12,153,626 and $10,957,334, respectively |
|
|
6,649,365 |
|
|
|
7,227,648 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net of accumulated amortization of $-0-,
respectively |
|
|
6,634,035 |
|
|
|
6,634,035 |
|
|
|
|
|
|
|
|
|
|
Operating lease - right-of-use asset |
|
|
214,674 |
|
|
|
363,282 |
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Restricted cash - debt service for NJEDA bonds |
|
|
405,013 |
|
|
|
404,802 |
|
Security deposits |
|
|
91,738 |
|
|
|
75,534 |
|
Total other assets |
|
|
496,751 |
|
|
|
480,336 |
|
Total assets |
|
$ |
26,189,492 |
|
|
$ |
24,956,580 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
929,690 |
|
|
$ |
1,577,860 |
|
Accrued expenses |
|
|
4,270,600 |
|
|
|
4,821,132 |
|
Deferred revenue, current portion |
|
|
13,333 |
|
|
|
180,000 |
|
Bonds payable, current portion, net of bond issuance costs |
|
|
95,822 |
|
|
|
90,822 |
|
Loans payable, current portion |
|
|
314,996 |
|
|
|
561,550 |
|
Lease obligation - operating lease, current portion |
|
|
188,090 |
|
|
|
208,184 |
|
Senior secured promissory note - related party, current
portion |
|
|
— |
|
|
|
1,200,000 |
|
Total current liabilities |
|
|
5,812,531 |
|
|
|
8,639,548 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue, net of current portion |
|
|
45,558 |
|
|
|
58,891 |
|
Bonds payable, net of current portion and bond issuance costs |
|
|
1,240,668 |
|
|
|
1,336,489 |
|
Loans payable, net of current portion |
|
|
500,066 |
|
|
|
463,902 |
|
Lease obligation - operating lease, net of current portion |
|
|
38,866 |
|
|
|
167,109 |
|
Derivative financial instruments - warrants |
|
|
2,362,246 |
|
|
|
3,599,378 |
|
Other long-term liabilities |
|
|
37,628 |
|
|
|
35,442 |
|
Total long-term liabilities |
|
|
4,225,032 |
|
|
|
5,661,211 |
|
Total liabilities |
|
|
10,037,563 |
|
|
|
14,300,759 |
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
ELITE PHARMACEUTICALS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(continued)
|
|
March 31,
2021 |
|
|
March 31,
2020 |
|
Shareholders’ equity: |
|
|
|
|
|
|
Series J convertible preferred stock; par value of $0.01; 50 shares
authorized; 0 issued and outstanding as of March 31, 2021 and
24.0344 issued and outstanding as of March 31, 2020 |
|
|
— |
|
|
|
13,903,960 |
|
Common
Stock; par value $0.001; 1,445,000,000 shares authorized;
1,009,276,752 shares issued and 1,009,176,752 shares outstanding as
of March 31, 2021; 840,504,367 shares issued and 840,404,367 shares
outstanding as of March 31, 2020 |
|
|
1,009,279 |
|
|
|
840,507 |
|
Additional paid-in capital |
|
|
164,407,480 |
|
|
|
150,264,605 |
|
Treasury
stock; 100,000 shares as of March 31, 2021 and March 31, 2020; at
cost |
|
|
(306,841 |
) |
|
|
(306,841 |
) |
Accumulated deficit |
|
|
(148,957,989 |
) |
|
|
(154,046,410 |
) |
Total shareholders’ equity |
|
|
16,151,929 |
|
|
|
10,655,821 |
|
Total liabilities and shareholders’ equity |
|
$ |
26,189,492
|
|
|
$ |
24,956,580 |
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
ELITE PHARMACEUTICALS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AUDITED)
|
|
For the Years Ended
March 31, |
|
|
|
2021 |
|
|
2020 |
|
Revenue: |
|
|
|
|
|
|
Manufacturing fees |
|
$ |
20,997,310 |
|
|
$ |
14,526,048 |
|
Licensing fees |
|
|
4,383,439 |
|
|
|
3,468,591 |
|
Total
revenue |
|
|
25,380,749 |
|
|
|
17,994,639 |
|
Cost of
manufacturing |
|
|
13,513,611 |
|
|
|
10,015,855 |
|
Gross
profit |
|
|
11,867,138 |
|
|
|
7,978,784 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and
development |
|
|
5,112,542 |
|
|
|
5,532,462 |
|
General and
administrative |
|
|
3,323,045 |
|
|
|
3,349,837 |
|
Non-cash
compensation through issuance of stock options |
|
|
13,181 |
|
|
|
62,098 |
|
Depreciation and amortization |
|
|
1,313,847 |
|
|
|
1,319,795 |
|
Total operating expenses |
|
|
9,762,615 |
|
|
|
10,264,192 |
|
|
|
|
|
|
|
|
|
|
Income (loss)
from operations |
|
|
2,104,523 |
|
|
|