ITEM
1 BUSINESS
General
Elite
Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”,
the “registrant”, “we”, “us” or “our”) was incorporated on October 1, 1997 under
the laws of the State of Delaware, and its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”), was incorporated
on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under
the laws of the State of Nevada.
We
are a specialty pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products,
using proprietary know-how and technology, particularly as it relates to abuse resistant products and the manufacture of generic
pharmaceuticals. Our strategy includes improving off-patent drug products for life cycle management, developing generic versions
of controlled-release drug products with high barriers to entry and the development of branded and generic products that utilize
our proprietary and patented abuse resistance technologies.
We
occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the
“Northvale Facility”). The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”)
and is a United States Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.
Strategy
We
focus our efforts on the following areas: (i) development of our pain management products; (ii) manufacturing of a line of generic
pharmaceutical products with approved Abbreviated New Drug Applications (“ANDAs”); (iii) development of additional
generic pharmaceutical products; (iv) development of the other products in our pipeline including the products with our partners;
(v) commercial exploitation of our products either by license and the collection of royalties, or through the manufacture of our
formulations; and (vi) development of new products and the expansion of our licensing agreements with other pharmaceutical companies,
including co-development projects, joint ventures and other collaborations.
Our
focus is on the development of various types of drug products, including branded drug products which require New Drug Applications
(“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984
(the “Drug Price Competition Act”) as well as generic drug products which require ANDAs.
We
believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes both branded
and generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies
with greater resources thereby allowing us to share costs of development and improve cash-flow.
Commercial
Products
We
own, license or contract manufacture 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
|
Hydromorphone
HCl 8mg tablets (“Hydromorphone 8mg”)
|
|
Dilaudid
®
|
|
Pain
|
|
March
2012
|
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
|
Methadone
HCl 5mg and 10mg tablets (“Methadone 5mg” and “Methadone 10mg”)
|
|
Dolophine
®
|
|
Pain
|
|
November
2018
|
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
|
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”. Hydromorphone 8mg is also referred to as “Hydromorphone Tablets”. 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”. Methadone 5mg and Methadone 10mg are collectively and individually referred to as “Methadone 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 are collectively and individually referred to as “Amphetamine IR Tablets”.
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.
The
first shipment of Phentermine 37.5mg was made to Precision Dose’s wholly owned subsidiary, TAGI Pharmaceuticals Inc. (“
TAGI
”),
pursuant to the Precision Dose License Agreement, with such initial shipment triggering a milestone payment under this agreement.
Phentermine 37.5mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Hydromorphone
8mg
The
approved ANDA for Hydromorphone 8mg was acquired pursuant to an asset purchase agreement with Mikah Pharma LLC (“
Mikah
Pharma
”) dated May 18, 2010 (the “
Hydromorphone Purchase Agreement
”). Transfer of the manufacturing
process of Hydromorphone 8mg to the Northvale Facility, a prerequisite of the Company’s commercial launch of the product,
was approved by the FDA on January 23, 2012.
Sales
and marketing rights for Hydromorphone 8mg are included in the Precision Dose License Agreement. Please see the section below
titled “
Precision Dose License Agreement
” for further details of this agreement.
The
first shipment of Hydromorphone 8mg was made to TAGI, pursuant to the Precision Dose License Agreement, in March 2012, with such
initial shipment triggering a milestone payment under this agreement. Hydromorphone 8mg is currently being manufactured by Elite
and distributed by TAGI under the Precision Dose License Agreement.
Phendimetrazine
Tartrate 35mg
The ANDA for Phendimetrazine
35mg was acquired by Elite as part of the asset purchase agreement between the Company and Mikah Pharma, dated August 1, 2013
(the “
Mikah ANDA Purchase
”). Please see “2013 ANDA Purchase Agreement” below for more information
on this agreement. The Northvale Facility was already an approved manufacturing site for this product as of the date of the Mikah
ANDA Purchase. Prior to the acquisition of this ANDA, Elite had been manufacturing this product on a contract basis pursuant to
a manufacturing and supply agreement with Mikah Pharma, dated June 1, 2011.
Phendimetrazine
35mg is currently a commercial product being manufactured by Elite and distributed by Glenmark Pharmaceuticals Inc., USA (“Glenmark”)
on a non-exclusive basis, and by Elite.
On
January 2, 2018, the Company announced that it received approval of its abbreviated new drug application (“
ANDA
”)
from the FDA for Phendimetrazine Tartrate Tablets USP, 35mg. This product approval is from an ANDA that the Company filed approximately
six years ago. This approval resulted in the Company having a second, approved ANDA for this product. The Company has been selling
this product pursuant to the marketing authorization achieved from the first approved ANDA. The Company is currently considering
strategic options for utilization of this approved ANDA, with such options including, without limitation, divestiture.
Phentermine
15mg and Phentermine 30mg
Phentermine
15mg capsules and Phentermine 30mg capsules were developed by the Company, with Elite receiving approval 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.
The
first shipments of Phentermine 15mg and Phentermine 30mg were made to TAGI, pursuant to the Precision Dose License Agreement,
in April 2013, with such initial shipments triggering a milestone payment under 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
approved ANDA for Naltrexone 50mg was acquired by the Company pursuant to an asset purchase agreement between the Company and
Mikah Pharma dated August 27, 2010 (the “
Naltrexone Acquisition Agreement
”) for aggregate consideration of
$200,000.
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.
The
first shipment of Naltrexone 50mg was made to TAGI, pursuant to the Precision Dose License Agreement, in September 2013, with
such initial shipment triggering a milestone payment under 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 as part of the Mikah ANDA Purchase.
Isradipine
2.5mg and Isradipine 5mg are currently a commercial product being manufactured by Elite and distributed by Glenmark, on an exclusive
basis.
Oxycodone
5mg, Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and Oxycodone 30mg (“Oxy IR”)
We
received notification from Epic in October 2015 of the approval by the FDA of Epic’s ANDA for Oxy IR. This product was an
Identified IR Product in the Epic Strategic Alliance Agreement Dated March 18, 2009 (the “
Epic Strategic Alliance
”).
Oxy IR was developed at the Northvale Facility pursuant to the Epic Strategic Alliance, in which we are entitled to a Product
Fee of 15% of Profits as defined in the Epic Strategic Alliance. The first commercial sale of Oxy IR occurred in March 2016, and
sales by Epic of this product are ongoing.
Trimipramine
25mg, Trimipramine 50mg, and Trimipramine 100mg
Through
Elite Labs, Elite acquired an approved and currently marketed ANDA for Trimipramine Maleate Capsules (“
Trimipramine
”)
25, 50 and 100 mg, from Mikah Pharma.
Trimipramine
25mg, Trimipramine 50mg and Trimipramine 100mg are currently a commercial product being manufactured by Elite and distributed
by Glenmark, on an exclusive basis.
Amphetamine
IR Tablets
On December 10, 2018,
the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall
®
, an immediate-release
mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate,
Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central
nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy.
According to QVIA (formerly QuintilesIMS Health) data the branded product and its equivalents had total U.S. sales of $365 million
for the twelve months ending September 30, 2018. This is the first product approval for our Elite and SunGen Pharma LLC (“SunGen”)
collaboration. The product is jointly owned. Elite will manufacture and package the product on a cost-plus basis and
the parties are negotiating an agreement for sales of the product. Amphetamine IR Tablets are currently sold pursuant to the Lannett
Alliance, with 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
Filed
products under FDA review
SequestOx™
- Immediate Release Oxycodone with sequestered Naltrexone
SequestOx™
is our lead 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 SequestOx
TM
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 SequestOx
TM
had a similar Tmax to the comparator
when taken with a high fat meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™.
On January 30, 2018, the Company reported positive topline results from a pilot study conducted for a modified SequestOx™
wherein, based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence
with a Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has
provided the pilot data to the FDA, requesting clarification as to the requirements for resubmission of the NDA. The FDA has provided
guidance for repeated bio-equivalence studies in order to bridge the new formulation to the original SequestOx studies and also
extended our filing fee waiver until July 2020. Due to the prohibitive cost of such repeated bio-equivalence studies, the Company
has paused development of this product.
There
can be no assurances of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances
of the success of any future clinical trials, or if such trials are successful, there can be no assurances that an intended future
resubmission of the NDA product filing, if made, will be accepted by or receive marketing approval from the FDA, and accordingly,
there can be no assurances that the Company will earn and receive the additional $7.5 million or future license fees (see “Licensing,
Manufacturing and Development Agreements; Sales and Distribution Licensing Agreement with Epic Pharma LLC for SequestOx™”
below). If the Company does not receive these payments or fees, it will materially and adversely affect our financial condition.
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 extended release Central Nervous System stimulant
On
May 24, 2018, the Company filed an ANDA with the FDA for a generic version of an extended release CNS stimulant. The ANDA represents
the second filing for a product co-developed with SunGen under the SunGen Agreement. According to IMS Health data, the branded
product and its equivalents had total U.S. sales of approximately $1.6 billion for the twelve months ended September 30, 2017.
The Company received a request from the FDA for additional information to which the Company has responded. The response
is under review by the FDA.
Under
the terms of the SunGen Agreement, the product will be owned jointly by the Company and SunGen. Elite shall have exclusive rights
to market and sell the product under its own label. Elite will also manufacture and package the product on a cost-plus basis.
Please
see the section below titled “
Master Development and License Agreement with SunGen Pharma LLC
” for further
details on the SunGen Agreement.
Acetaminophen
and Codeine Phosphate
On
September 18, 2018, the Company filed an ANDA with the FDA 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).
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 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.
Approved
Products Not Yet Commercialized
Oxycodone
hydrochloride and acetaminophen USP CII (generic version of Percocet®)
On
August 9, 2016, the Company filed an ANDA with the FDA for a generic version of Percocet® (oxycodone hydrochloride and acetaminophen,
USP CII) 5mg, 7.5mg and 10mg tablets with 325mg of acetaminophen. Percocet® is a combination medication and is used to help
relieve moderate to severe pain. The Company received approval of this ANDA in July 2018. Elite has not yet launched this product
and is seeking a partner for this product.
Hydrocodone
bitartrate and acetaminophen tablets USP CII (generic version of Norco
®
)
In
December 2016, the Company filed an ANDA with the FDA for a generic version of Norco
®
(hydrocodone bitartrate and
acetaminophen tablets USP CII) 2.5mg/325mg, 5mg/325mg, 7.5mg/325mg and 10mg/325mg tablets. The Company received approval of this
ANDA in November 2018. Norco is a combination medication and is used to help relieve moderate to moderately severe pain. The combination
products of hydrocodone and acetaminophen have total annual US sales of approximately $700 million, according to IMS Health Data.
. Elite has not yet launched this product and is seeking a partner for this product.
Dantrolene
Sodium Capsules
In March 2019, the
Company’s prior approval supplement (“PAS”) filed with the FDA was approved, thereby successfully transferring
manufacture of Dantrolene Sodium 25mg, 50mg and 100mg capsules (“Dantrolene Capsules”) to the Northvale Facility.
The approved ANDAs for Dantrolene Capsules were acquired as part of the 2013 ANDA acquisition between the Company and Mikah Pharma.
Please see the section below titled “Asset Acquisition Agreements” for further details on the 2013 ANDA acquisition
agreement. Dantrolene Capsules will be marketed by Lannett Company, pursuant to the marketing alliance agreement between the Company
and Lannett. Please see the section below titled “
Strategic Marketing Alliances with Lannett Company Inc.
”
for further details on this marketing alliance. The Company expects commercial launch of Dantrolene Capsules during this year.
Loxapine
5mg, 10mg, 25mg and 50mg capsules (“Loxapine Capsules”)
A PAS has been filed
with the FDA for transfer of manufacturing of this product to the Northvale Facility, with such PAS being under review by the
FDA. The approved ANDAs for Loxapine Capsules were acquired as part of the 2013 ANDA acquisition between the Company and Mikah
Pharma. Please see the section below titled “Asset Acquisition Agreements” for further details on the 2013 ANDA acquisition
agreement.
Discontinued
and Transferred Products
The FDA’s Generic
Drug User Fee Amendment (“GDUFA”) fee structure includes fee brackets that are based on the number of ANDAs owned
as of the April 1st annual measurement date. As of the measurement date in 2018, The Company qualified as a medium sized company,
which is defined as an entity that owns between 6 and 19 ANDAs. During the fiscal year ending March 31, 2019, the Company received
approval for several ANDAs, which, when added to those approved in prior periods resulted in the Company owning in excess of 19
ANDA’s and would have required classification as a large sized company as of the 2019 measurement date. Based on the latest
fee schedule published by the FDA in August 2018, the annual fee for a large company is $1.1 million higher than the fee we paid
as a qualified medium company. Qualifying as a large sized company would accordingly result in a significant increase in annual
regulatory fees.
Prior
to the April 1, 2019 measurement date, the Company conducted an evaluation of all ANDAs owned to determine the feasibility of
incurring such increased annual fees in relation to the value and place of each ANDA in the company’s current and future
operations and strategic plans. Based on this study, the Company identified the following ANDAs for sale and, if sale was not
possible prior to the measurement date, discontinuance, so as to ensure that total ANDAs owned at the measurement date were not
greater than 19, allowing the Company to qualify as a medium sized entity, as opposed to a large sized entity, which would have
resulted in increased regulatory costs in excess of $1 million annually.
Hydroxyzine
HCl
Approved ANDAs for
Hydroxyzine HCl 10mg, 25mg and 50mg tablets (“Hydroxzine Tablets”) were sold to Epic Pharma LLC for cash consideration
totaling $450,000. The three related approved ANDA’s had an aggregate carrying value of $787,000, with such sale resulting
in a recognized loss of $337,000 during the fiscal year ended March 31, 2019.
Phentermine
Capsules
Approved ANDAs for
Phentermine 30mg and 15mg capsules and Phentermine 30mg seeded capsules were discontinued in March 2019. These three ANDAs had
an aggregate carrying value of $291,000, which was recognized as a loss during the fiscal year ended March 31, 2019.
Asset
Acquisition Agreements
Generic
Phentermine Capsules
On
September 10, 2010, together with our wholly owned subsidiary, Elite Laboratories, Inc., executed a purchase agreement (the “
Phentermine
Purchase Agreement
”) with Epic for the purpose of acquiring from Epic, an ANDA for a generic phentermine product (the
”
Phentermine ANDA
”), with such being filed with the FDA at the time the Phentermine Purchase Agreement was
executed. On February 4, 2011, the FDA approved the Phentermine ANDA. The acquisition of the Phentermine ANDA closed on March
31, 2011 and Elite paid the full acquisition price of $450,000 from the purchase agreement with Epic Pharma.
This
product is being marketed and distributed by Precision Dose and its wholly owned subsidiary, TAGI, pursuant to the Precision Dose
License Agreement, a description of which is set forth below.
Generic
Hydromorphone HCl Product
On
May 18, 2010, we executed an asset purchase agreement with Mikah Pharma (the “
Hydromorphone Purchase Agreement
”).
Pursuant to the Hydromorphone Purchase Agreement, the Company acquired from Mikah Pharma an approved ANDA for Hydromorphone 8
mg for aggregate consideration of $225,000, comprised of an initial payment of $150,000, which was made on May 18, 2010. A second
payment of $75,000 was due to be paid to Mikah Pharma on June 15, 2010, with the Company having the option to make this payment
in cash or by issuing to Mikah Pharma 937,500 shares of our common stock. We elected and did issue 937,500 shares of Common Stock
during the quarter ended December 31, 2010, in full payment of the $75,000 due to Mikah Pharma pursuant to the Hydromorphone Purchase
Agreement dated May 18, 2010.
This
product is currently being marketed and distributed by Precision Dose and its wholly owned subsidiary, TAGI, pursuant to the Precision
Dose License Agreement, a description of which is set forth below.
Generic
Naltrexone Product
On
August 27, 2010, we executed an asset purchase with Mikah Pharma (the “
Naltrexone Acquisition Agreement
”).
Pursuant to the Naltrexone Acquisition Agreement, Elite acquired from Mikah Pharma the ANDA number 75-274 (Naltrexone Hydrochloride
Tablets USP, 50 mg), and all amendments thereto, that have to date been filed with the FDA seeking authorization and approval
to manufacture, package, ship and sell the products described in this ANDA within the United States and its territories (including
Puerto Rico) for aggregate consideration of $200,000. In lieu of cash, Mikah Pharma agreed to accept product development services
to be performed by us.
This
product is being marketed and distributed by Precision Dose and its wholly owned subsidiary, TAGI, pursuant to the Precision Dose
License Agreement, a description of which is set forth below.
2013
ANDA Purchase Agreement
On August 1, 2013,
Elite executed a purchase agreement with Mikah (the “2013 ANDA Purchase Agreement”) pursuant to which, Elite acquired,
for aggregated consideration of $10,000,000, inclusive of imputed interest, approved ANDAs for the following products: Hydroxyzine
HCl 10mg, 25mg and 50mg tablets (“Hydroxyzine Tablets”), Phentermine Capsules, Phentermine Tablets, Phendimetrazine
Tablets, Isradipine Capsules, Dantrolene Capsules and Loxapine 5mg, 10mg, 25mg and 50mg capsules (“Loxapine Capsules”).
In addition, Elite acquired one ANDA under review by the FDA, which is not expected to be approved and for which no value was
assigned.
The
Company issued a secured, non interest bearing, convertible note for the aggregate consideration, with such note being due in
August 2016. This note was amended on February 7, 2014 to make it convertible into shares of the Company’s Series I Convertible
Preferred Stock. On February 7, 2014, this note was converted into 100 shares of the Company’s Series I Preferred Stock,
and retired.
On August 16, 2016,
these 100 shares of Series I Preferred Stock were converted into 142,857,143 shares of Common Stock, with such shares being included
in the exchange agreement dated April 28, 2017 pursuant to which shares were returned to the company, in exchange for shares of
Series J Preferred Stock and Warrants, both of which are still outstanding. Please see
“Certain
Relationships And Related Transactions, And Director Independence”
, below for further details of these transactions.
The
following is a summary of the status of the ANDAs acquired pursuant to the 2013 ANDA Purchase Agreement:
Product
|
|
Status
|
Hydroxzine
Tablets
|
|
Transferred
to Epic Pharma
|
Phentermine
Capsules
|
|
Discontinued
|
Phentermine
Tablets
|
|
Commercial
|
Phendimetrazine
Tablets
|
|
Commercial
|
Isradipine
Capsules
|
|
Commercial
|
Dantrolene
Capsules
|
|
Manufacturing
transferred to Northvale facility; Commercial launch expected this year
|
Loxapine
Capsules
|
|
Manufacturing
site transfer in progress
|
Trimipramine
In
May 2017, through Elite Labs, we acquired from Mikah Pharma an FDA approved ANDA for Trimipramine for aggregate consideration
of $1,200,000. Trimipramine is currently manufactured by Elite and marketed by Glenmark pursuant to the Glenmark Strategic Alliance.
Trimipramine is a generic version of Surmontil®, a tricyclic antidepressant. Surmontil® and generic Trimipramine have
total US sales of approximately $2 million in 2016 according to IMS Health Data. The ANDA purchased by Elite is currently the
only marketed generic Trimipramine product.
Please
see Item 13: “
Certain Relationships and Related Transactions and Director Independence; Certain Related Person Transactions;
Transactions with Nasrat Hakim and Mikah Pharma LLC”
below.
Licensing,
Manufacturing and Development Agreements
Sales
and Distribution Licensing Agreement with Epic Pharma LLC for SequestOx™
On
June 4, 2015, we executed an exclusive License Agreement (the “
2015 SequestOx™ License Agreement
”) with
Epic, to market and sell in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned
by us. Epic will have the exclusive right to market ELI-200 and its various dosage forms as listed in Schedule A of the Agreement.
Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015 SequestOx™
License Agreement, Epic will pay us non-refundable payments totaling $15 million, with such amount representing the cost of an
exclusive license to SequestOx™, the cost of developing the product, the filing of an NDA with the FDA and the receipt of
the approval letter for the NDA from the FDA. As of the date of filing of this annual report on Form 10-K, the Company has received
$7.5 million of the $15 million in non-refundable payments due pursuant to the 2015 SequestOx™ License Agreement, with such
amount consisting of $5 million being due and owing on the execution date of the 2015 SequestOx™ License Agreement, and
$2.5 million being earned as of January 14, 2016, the date of Elite’s filing of an NDA with the FDA for the relevant product.
Both of these non-refundable fees (i.e., the $5 million fee and the $2.5 million fee), have been paid by Epic.
The
remaining $7.5 million in non-refundable payments due pursuant to the 2015 SequestOx™ License Agreement is due on the FDA’s
approval of SequestOx™ for commercial sale in the United States of America (please see the paragraph below for further details).
In addition, we will receive a license fee computed as a percentage (50%) of net sales of the products as defined in the 2015
SequestOx™ License Agreement and is entitled to multi-million-dollar minimum annual license fees we will manufacture the
product for sale by Epic on a cost-plus basis and both parties agree to execute a separate Manufacturing and Supply Agreement.
The license fee is payable quarterly for the term of the 2015 SequestOx™ License Agreement. The term of the 2015 SequestOx™
License Agreement is five years and may be extended for an additional five years upon mutual agreement of the parties. Elite can
terminate the 2015 SequestOx™ License Agreement on 90 days’ written notice in the event that Epic does not pay us
certain minimum annual license fees over the initial five-year term of the 2015 SequestOx™ License Agreement. Either party
may terminate this 2015 SequestOx™ License Agreement upon a material breach and failure to cure that breach by the other
party within a specified period.
Please
see the above section titled
“SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone”
for
further details on this product and especially note that, as of the date of filing of this Annual Report on Form 10-K, the NDA
filed for this product has not been approved by the FDA. Furthermore, the 2015 SequestOx™ License Agreement has a five-year
term, expiring on June 4, 2020, and Epic has previously advised the Company of their desire to extend this agreement. While discussions
are ongoing, they are directly correlated to the regulatory status of SequestOx
™
. Furthermore, there can be no assurances
that the parties will reach mutual agreement to extend the term of this agreement and no assurances that the terms and conditions
of the agreement will be similar in all material aspects in the event that the agreement is extended by mutual agreement of the
parties.
Manufacturing
and License Agreement with Epic Pharma LLC
On October 2, 2013,
we executed the Epic Pharma Manufacturing and License Agreement (the “
Epic Manufacturing and License Agreement
”).
This agreement, which expired on October 2, 2018, granted Epic certain rights to manufacture, market and sell in the United States
and Puerto Rico the twelve approved ANDAs acquired by us pursuant to the 2013 ANDA Purchase Agreement. Of the twelve approved
ANDAs, Epic had an exclusive right to market six products as listed in Schedule A of the Epic Manufacturing and License Agreement,
and a non-exclusive right to market six products as listed in Schedule D of the Epic Manufacturing and License Agreement. Pursuant
to the Epic Manufacturing and License Agreement, we received a license fee and milestone payments. The license fee was computed
as a percentage of the gross profit, as defined in the Epic Manufacturing and License Agreement, earned by Epic from the sale
of the products. The manufacturing cost used for the calculation of the license fee was a predetermined amount per unit plus the
cost of the active pharmaceutical ingredient (”
API
”) and the sales cost for the calculation was predetermined
based on net sales.
The
Epic Manufacturing and License Agreement expired on October 2, 2018, in accordance with terms and conditions therein.
Trimipramine
Acquisition
On
May 16, 2017, we executed an asset purchase agreement with Mikah Pharma, and acquired from Mikah Pharma (the “
Trimipramine
Acquisition
”) an FDA approved ANDA for Trimipramine for aggregate consideration of $1,200,000, payable pursuant to a
senior secured note due on December 31, 2020 (the “
Trimipramine Note
”). Mikah Pharma is owned by Nasrat Hakim,
the CEO, President, and a director of the Company.
The
Trimipramine Note bears interest at the rate of 10% per annum, payable quarterly. All principal and unpaid interest is due and
payable on December 31, 2020. Pursuant to a security agreement, repayment of the Note is secured by the ANDA acquired in the Acquisition.
Trimipramine
Distribution Agreement with Dr. Reddy’s Laboratories, Inc. and Manufacturing Agreement with Epic
On
May 17, 2017, in conjunction with the Trimipramine Acquisition, the Company executed an assignment agreement with Mikah Pharma,
pursuant to which the Company acquired all rights, interests, and obligations under a supply and distribution agreement (the “
Reddy’s
Trimipramine Distribution Agreement
”) with Dr. Reddy’s Laboratories, Inc. (“
Dr. Reddy’s
”)
originally entered into by Mikah Pharma on May 7, 2017 and relating to the supply, sale and distribution of generic Trimipramine
Maleate Capsules 25mg, 50mg and 100mg.
On
May 22, 2017, the Company executed an assignment agreement with Mikah Pharma, pursuant to which the Company acquired all rights,
interests and obligations under a manufacturing and supply agreement with Epic originally entered into by Mikah in 2011 and amended
on June 30, 2015 and relating to the manufacture and supply of Trimipramine (the “
Trimipramine Manufacturing Agreement
”).
Under
the Trimipramine Manufacturing Agreement, Epic manufactured Trimipramine under license from the Company pursuant to the FDA approved
and currently marketed Abbreviated New Drug Application that was acquired in conjunction with the Company’s entry into these
agreements.
Under
the Reddy’s Trimipramine Distribution Agreement, the Company supplied Trimipramine on an exclusive basis to Dr. Reddy’s
and Dr. Reddy’s was responsible for all marketing and distribution of Trimipramine in the United States, its territories,
possessions, and commonwealth. The Trimipramine was manufactured by Epic and transferred to Dr. Reddy’s at cost, without
markup.
Dr.
Reddy’s paid the Company a share of the profits, calculated without any deduction for cost of sales and marketing, derived
from the sale of Trimipramine. The Company’s share of these profits was in excess of 50%.
The
Reddy’s Trimipramine Distribution Agreement was terminated by mutual consent of the parties on August 1, 2018.
Ascend
Methadone Manufacturing and Supply Agreement
On
June 23, 2011 and as amended on September 24, 2012, January 19, 2015, July 20, 2015 and as extended on August 9, 2016, we entered
into an agreement to manufacture and supply Methadone 10mg tablets (the “Ascend Methadone”) to ThePharmaNetwork LLC
(the “Ascend
Methadone Manufacturing and Supply Agreement
”). ThePharmaNetwork LLC was subsequently acquired
by Alkem Laboratories Ltd (“
Alkem
”) and now goes by the name Ascend Laboratories LLC (“
Ascend
”)
and is a wholly owned subsidiary of Alkem.
Ascend
is the owner of the approved ANDA for Ascend Methadone, and the Northvale Facility is an approved manufacturing site for this
ANDA. The Ascend Methadone Manufacturing and Supply Agreement provides for the manufacturing and packaging by the Company of Ascend
Methadone.
The
initial shipment of Ascend Methadone pursuant to the Ascend Methadone Manufacturing and Supply Agreement occurred in January 2012.
On
August 26, 2016, the Ascend Methadone Manufacturing and Supply Agreement was amended and extended through December 31, 2017.
Subsequent
to the expiration of the Ascend Methadone Manufacturing and Supply Agreement, the Company honored purchase orders from Ascend,
to manufacture Ascend Methadone. The commercial terms on those purchase orders honored were similar to those included in the expired
agreement. The last shipment of Ascend Methadone pursuant to purchase orders honored subsequent to the expiration of the Ascend
Methadone Manufacturing and Supply Agreement occurred in April 2018 and there will be no further manufacture or shipments of Ascend
Methadone.
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 installments. The first installment was paid upon execution of the Precision Dose License Agreement.
The remaining installments are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of
the Precision Dose License Agreement is 15 years and may be extended for 3 successive terms, each of 5 years.
Master
Development and License Agreement with SunGen Pharma LLC
On August 24, 2016,
as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to
undertake and engage in the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products
are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the
remaining four products consist of antidepressants, antibiotics and antispasmodics. To date, the Company has received approval
from the FDA for Amphetamine IR Tablets (the first of the two CNS Products) and has filed ANDA’s for the second CNS Product
as well as ANDA filed 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
January 10, 2018, the Company reported positive topline results from pivotal bioequivalence studies for an undisclosed extended-release
generic product in co-development with SunGen Pharma. The topline results indicate that the generic product is bioequivalent to
the branded product. The studies were single dose crossover comparative bioavailability studies in healthy male and female volunteers
in both the fed and fasting states. A fasting study with product beads sprinkled on to applesauce also demonstrated bioequivalence
to the branded product. MS Health reported approximately $1.6 billion in revenue for the generic market for this product in 2017.
On
May 24, 2018, the Company filed an ANDA with the FDA for a generic version of an extended release CNS stimulant. The ANDA represents
the second filing for a product co-developed with SunGen under the SunGen Agreement. According to IMS Health data, the branded
product and its equivalents had total U.S. sales of approximately $1.6 billion for the twelve months ended September 30, 2017.
The Company received a request from the FDA for additional information to which the Company has responded. The filing is
under review by the FDA.
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. According to QVIA (formerly QuintilesIMS Health) data the branded product and its equivalents had
total U.S. sales of $365 million for the twelve months ending September 30, 2018. This is the first product approval for our Elite
and SunGen Pharma LLC (“SunGen”) collaboration. The product is jointly owned. Elite will manufacture and
package the product on a cost-plus basis and the parties are negotiating an agreement for sales of the product. Amphetamine IR
Tablets is currently sold pursuant to the Lannett Alliance, with 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
n 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.
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 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 or provide sufficient financial contributions to support costs of operations and overheads.
Strategic
Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA
On
May 29, 2018, and as amended on August 1, 2018, we entered into a license, manufacturing and supply agreement with Glenmark Pharmaceuticals
Inc. USA (“
Glenmark
”) to market the two Elite generic products described below in the United States with the
option to add products in the future (the “
Glenmark Alliance
”).
Pursuant to the Glenmark
Alliance, Glenmark will purchase the products from Elite and then sell and distribute them. In addition to the purchase prices
for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profits is defined as net sales
less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. Glenmark will have
semi-exclusive marketing rights to the ANDA approved generic product, phendimetrazine 35mg tablets, and exclusive marketing rights
to the following ANDA approved generic products: Methadone 10mg, Methadone 5mg, Trimipramine 25mg, Trimipramine 50mg, Trimipramine
100mg, and effective October 2, 2018, upon expiration of the Epic Manufacturing and License Agreement, exclusive marketing rights
to the following ANDA approved generic products: Isradipine 2.5mg and Isradipine 5mg. The Glenmark Alliance has an initial term
of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior
written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a
product if at anytime after the first twelvemonths from the first commercial sale, the average license fee paid by Glenmark for
such product is less than $100,000 for a six month sales period.
The
first commercial shipment of Methadone Tablets pursuant to the Glenmark Alliance occurred in November 2018. The first commercial
shipment of Isradipine Capsules pursuant to the Glenmark Alliance occurred in March 2019. The first commercial shipment of Trimipramine
Capsules occurred in April 2019.
There
can be no assurances that there will be future revenues of profits, earned pursuant to the Glenmark Alliance, or that any such
future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure the
marketing authorizations for products included in the Glenmark Alliance or provide sufficient financial contributions to support
costs of operations and overheads.
Strategic Marketing
Alliances with Lannett Company Inc.
The Company has entered
into two separate license, supply and distribution agreements with Lannett Company Inc. (“Lannett”). The first agreement,
dated March 6, 2019 relates to products that were co-developed with SunGen (the “Lannett-SunGen Product Alliance”).
The second agreement, dated April 9, 2019 relates to products that were solely developed by Elite (the “Lannett-Elite Product
Alliance”). Both agreements are collectively and individually referred to as the “Lannett Alliance”)
Pursuant to Lannett-SunGen
Product Alliance with Lannett, Lannett will be the exclusive U.S. marketer and distributor for two generic products co-developed
and co-owned by Elite and SunGen – Amphetamine IR Tablets and a second product which is an extended release CNS stimulant
that is currently under review by the FDA. Elite will manufacture and Lannett will purchase the products from Elite and then sell
and distribute them. In addition to the purchase prices for the products, Elite will receive license fees in excess of 50% of
net profits, which will be shared equally with SunGen, pursuant to the SunGen Agreement. 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 six months’
prior written notice, and it permits Elite or Lannett to terminate with regard to a product if at anytime after the first twelve
months from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000 for a six
month sales period. In addition to manufacturing fees and license fees, Lannett will also pay a milestone, of $750,000 upon commercial
launch of the extended release CNS stimulant product that is currently under review by the FDA. This milestone payment will be
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.
Pursuant to the Lannett-Elite
Product Alliance, Lannett will be the exclusive U.S. marketer and distributor for Dantrolene Capsules. Elite will manufacture and
Lannett will purchase Dantrolene Capsules from Elite and then sell and distribute them. In addition to the purchase prices for
the products, Elite will receive license fees in excess of 50% of net profits. Net profits is defined as net sales less the price
paid to Elite for the products, distribution fees (less than 10%) and shipping costs. 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 six
months’ prior written notice and it permits Elite or Lannett to terminate with regard to a product if at anytime after the
first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000
for a six month sales period.
Products
Under Development
Elite’s
research and development activities include developing its proprietary abuse deterrent technology and the development of a range
of abuse deterrent opioid products that utilize this technology or other approaches to abuse deterrence.
Elite’s
proprietary abuse-deterrent technology utilizes the pharmacological approach to abuse deterrence and consists of a multi-particulate
capsule which contains an opioid agonist in addition to naltrexone, an opioid antagonist used primarily in the management of alcohol
dependence and opioid dependence. When this product is taken as intended, the naltrexone is designed to pass through the body
unreleased while the opioid agonist releases over time providing therapeutic pain relief for which it is prescribed. If the multi-particulate
beads are crushed or dissolved, the opioid antagonist, naltrexone, is designed to release. The absorption of the naltrexone is
intended to block the euphoria by preferentially binding to same receptors in the brain as the opioid agonist and thereby reducing
the incentive for abuse or misuse by recreational drug abusers.
We
filed an NDA for the first product to utilize our abuse deterrent technology, Immediate Release Oxycodone 5mg, 10mg, 15mg, 20mg
and 30mg with sequestered Naltrexone (collectively and individually referred to as “
SequestOx™
”), on
January 14, 2016. Please see “
Filed products under FDA review; SequestOx™ - Immediate Release Oxycodone with sequestered
Naltrexone
” above and please note that continued development of this product is currently paused.
On
September 20, 2017, the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride).
Please see “
Filed products under FDA review; Oxycodone Hydrochloride extended release (generic version of OxyContin
®”
above. Please note that there can be no assurances of this product receiving marketing authorization or achieving commercialization.
In addition, even if marketing authorization is received and the product is commercialized, there can be no assurances of future
revenues or profits in such amounts that would provide adequate return on the significant investments made to secure marketing
authorization for this product.
On
May 30, 2018, the Company filed an ANDA with the FDA for a generic version of an extended release CNS stimulant. The ANDA
represents the second filing for a product co-developed with SunGen under the SunGen Agreement. Please see “
Filed
products under FDA review Generic version of extended release Central Nervous System stimulant
” 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
”.
On September 18, 2018,
the Company filed an Abbreviated New Drug Application with the US Food and Drug Administration (the “FDA”) for a generic
version of Tylenol® with Codeine (acetaminophen and codeine phosphate) 300mg/7.5mg, 300mg/15mg, 300mg/30mg and 300mg/60mg
tablets. 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.
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
”.
The
Company believes that the abuse deterrent technology can be applied to and incorporated into a wide range of opioids used today
for pain management and has, to date, identified additional products for potential development. All of these products are at early
stages of development, with research and development activities mainly consisting of in-house process development and laboratory
studies. Extensive efficacy and safety studies, similar to those conducted for SequestOx™, Generic Oxy/APAP and Generic
Hydrocodone/APAP, have not yet been conducted for these other products. As a result, costs incurred in relation to the development
of these products have not been material.
Research and development
costs were $7.6 million and $9.6 million for years ended March 31, 2019 and 2018, respectively. Costs incurred relate to the development
of the abuse deterrent opioid product, SequestOx™ , the ongoing development of our abuse deterrent opioid and other products
in addition to a focus on clinical trials for generic products.
Please
note that, while the FDA is required to review applications within certain timeframes, during the review process, the FDA frequently
requests that additional information be submitted. The effect of such request and subsequent submission can significantly extend
the time for the NDA review process. Until an NDA is actually approved, there can be no assurances that the information requested
and submitted will be considered adequate by the FDA to justify approval. The packaging and labeling of our developed products
are also subject to FDA regulation. Based on the foregoing, it is impossible to anticipate the amount of time that will be needed
to obtain FDA approval to market any product. In addition, there can be no assurances of the Company filing the required application(s)
with the FDA or of the FDA approving such application(s) if filed, and the Company’s ability to successfully develop and
commercialize products incorporating its abuse deterrent technology is subject to a high level of risk as detailed in “
Item
1A-Risk Factors-Risks Related to our Business
” of this Annual Report on Form 10-K.
Abuse-Deterrent
and Sustained Release Opioids
The
abuse-deterrent opioid products utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These
products are combinations of a narcotic agonist formulation intended for use in patients with pain, and an antagonist, formulated
to deter abuse of the drug. Both, agonist and antagonist, have been on the market for a number of years and sold separately in
various dose strengths. We have filed INDs for two abuse resistant products under development and have tested products in various
pharmacokinetic and efficacy studies. Products utilizing the pharmacological approach to deter abuse such as Suboxone®, a
product marketed in the United States by Reckitt Benckiser Pharmaceuticals, Inc., and Embeda®, a product marketed in the United
States by Pfizer, Inc., have been approved by the FDA and are being marketed in the United States.
We
have developed, licensed to Epic the marketing rights to SequestOx™, immediate release Oxycodone with Naltrexone, and retain
the rights to the remainder of these abuse resistant and sustained release opioid products. We may license these products at a
later date to a third party who could provide funding for the remaining clinical studies and who could provide sales and distribution
for the product.
We
also developed controlled release technology for oxycodone under a joint venture with Elan which terminated in 2002. According
to the Elan Termination Agreement, we acquired all proprietary, development and commercial rights for the worldwide markets for
the products developed by the joint venture, including the sustained release opioid products. Upon licensing or commercialization
of an oral controlled release formulation of oxycodone for the treatment of pain, we will pay a royalty to Elan pursuant to the
Elan Termination Agreement. If we were to sell the product itself, we will pay a 1% royalty to Elan based on the product’s
net sales, and if we enter into an agreement with another party to sell the product, we will pay a 9% royalty to Elan based on
our net revenues from this product. We are allowed to recoup all development costs including research, process development, analytical
development, clinical development and regulatory costs before payment of any royalties to Elan.
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 6,620,439
|
|
October
2020
|
U.S.
patent 6,926,909
|
|
April
2023
|
U.S.
patent 8,182,836
|
|
April
2024
|
U.S.
patent 8,425,933
|
|
April
2024
|
U.S.
patent 8,703,186
|
|
April
2024
|
Canadian
patent 2,521,655
|
|
April
2024
|
Canadian
patent 2,541,371
|
|
September
2024
|
U.S.
patent 9,056,054
|
|
June
2030
|
E.P.
patent 1615623
|
|
April
2024
|
U.S.
patent 10213388
|
|
April
2030
|
We
also have pending applications for two additional U.S. patents non-provisional patents and one provisional patent application
and one foreign patent application. We intend to apply for patents for other products in the future; however, there can be no
assurance that any of the pending applications or other applications which we may file will be granted. We have also filed corresponding
foreign applications for key patents.
Prior
to the enactment in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade
(“
GATT
”), the exclusive rights afforded by a U.S. Patent were for a period of 17 years measured from the date
of grant. Under GATT, the term of any U.S. Patent granted on an application filed subsequent to June 8, 1995 terminates 20 years
from the date on which the patent application was filed in the United States or the first priority date, whichever occurs first.
Future patents granted on an application filed before June 8, 1995, will have a term that terminates 20 years from such date,
or 17 years from the date of grant, whichever date is later.
Under
the Drug Price Competition Act, a U.S. product patent or use patent may be extended for up to five years under certain circumstances
to compensate the patent holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price
Competition Act are available only to the first approved use of the active ingredient in the drug product and may be applied only
to one patent per drug product. There can be no assurance that we will be able to take advantage of this law.
Also,
different countries have different procedures for obtaining patents, and patents issued by different countries provide different
degrees of protection against the use of a patented invention by others. There can be no assurance, therefore, that the issuance
to us in one country of a patent covering an invention will be followed by the issuance in other countries of patents covering
the same invention, or that any judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued
in one country will be similar to the judicial interpretation given to a corresponding patent issued in another country. Furthermore,
even if our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will
not be able to design around such patents and compete with us using the resulting alternative technology.
Trademarks
SequestOx™ is
a trademark owned by Elite, for which United States trademark registration is being sought.
We
currently plan to license at least some of our products to other entities in the marketing of pharmaceuticals but may also sell
products under our own brand name in which case we may register trademarks for those products.
Terminated
Agreements
Terminated
Agreement – Methadone Manufacturing and Supply Agreement
On
December 31, 2017, the Methadone Manufacturing and Supply Agreement terminated in accordance with the terms of the agreement.
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 actually 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 labeling of our developed products are also subject to FDA regulation. It is
impossible to anticipate the amount of time that will be needed to obtain FDA approval to market any product.
Whether
or not FDA approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must
be obtained prior to the commencement of marketing of the product in that country. We intend to conduct all marketing in territories
other than the United States through other pharmaceutical companies based in those countries. The approval procedure varies from
country to country, can involve additional testing, and the time required may differ from that required for FDA approval. Although
there are some procedures for unified filings for certain European countries, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals
from both the FDA and foreign regulatory authorities after the relevant applications are filed. After such approvals are obtained,
further delays may be encountered before the products become commercially available.
ANDAs
The
FDA approval procedure for an ANDA differs from the procedure for an NDA in that the FDA waives the requirement of conducting
complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “
Bioavailability
”
indicates the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce
a therapeutic effect. “
Bioequivalence
” compares the bioavailability of one drug product with another, and when
established, indicates that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent
for the generic drug and the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent
of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.
The
timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed
patents for the drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during
which the FDA may be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory
exclusivity period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date.
In
May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties
on individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations,
the Generic Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual
that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation
of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the
marketing of approved drugs by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal
of previously approved applications. Neither we nor any of our employees have ever been subject to debarment. We do not believe
that we receive any services from any debarred person.
Controlled
Substances
We
are also subject to federal, state, and local laws of general applicability, such as laws relating to working conditions. We are
also licensed by, registered with, and subject to periodic inspection and regulation by the Drug Enforcement Agency (“
DEA
”)
and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that we
currently develop or may develop in the future may be subject to regulations under the Controlled Substances Act and related statutes.
As we manufacture such products, we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors
of prescription drugs.
cGMP
All
facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in
conformity with cGMP regulations issued by the FDA. We engage in manufacturing on a commercial basis for distribution of products
and operate our facilities in accordance with cGMP regulations. If we hire another company to perform contract manufacturing for
us, we must ensure that our contractor’s facilities conform to cGMP regulations.
Compliance
with Environmental Laws
We
are subject to comprehensive federal, state and local environmental laws and regulations that govern, among other things, air
polluting emissions, waste water discharges, solid and hazardous waste disposal, and the remediation of contamination associated
with current or past generation handling and disposal activities, including the past practices of corporations as to which we
are the legal successor or in possession. We do not expect that compliance with such environmental laws will have a material effect
on our capital expenditures, earnings, or competitive position in the foreseeable future. There can be no assurance, however,
that future changes in environmental laws or regulations, administrative actions or enforcement actions, or remediation obligations
arising under environmental laws will not have a material adverse effect on our capital expenditures, earnings, or competitive
position.
Competition
We
have competition with respect to our principal areas of operation. We develop and manufacture generic products, products using
controlled-release drug technology, products utilizing abuse deterrent technologies, and we develop and market (either on our
own or by license to other companies) generic and proprietary controlled-release and abuse deterrent pharmaceutical products.
In both areas, our competition consists of those companies which develop controlled-release, abuse deterrent drugs and alternative
drug delivery systems. We do not represent a significant presence in the pharmaceutical industry.
An
increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. Some of the major pharmaceutical companies have invested and are continuing to invest
significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such
specialized drug delivery companies. Many of these companies have greater financial and other resources as well as more experience
than we do in commercializing pharmaceutical products. Certain companies have a track record of success in developing controlled-release
drugs. Significant among these are, without limitation, Pfizer, Sandoz (a Novartis company), Mylan Laboratories, Inc., Endo Pharmaceuticals,
Inc., Teva Pharmaceuticals Industries Ltd., Amneal Laboratories, Inc., Mallinckrodt, and Aurobindo. Each of these companies has
developed expertise in certain types of drug delivery systems, although such expertise does not carry over to developing a controlled-release
version of all drugs. Such companies may develop new drug formulations and products or may improve existing drug formulations
and products more efficiently than we can. In addition, almost all of our competitors have vastly greater resources than we do.
While our product development capabilities and, if obtained, patent protection may help us to maintain our market position in
the field of advanced drug delivery, there can be no assurance that others will not be able to develop such capabilities or alternative
technologies outside the scope of our patents, if any, or that even if patent protection is obtained, such patents will not be
successfully challenged in the future.
In
addition to competitors that are developing products based on drug delivery technologies, there are also companies that have announced
that they are developing opioid abuse-deterrent products that might compete directly or indirectly with Elite’s products.
These include, but are not limited to Pfizer Inc., , Collegium Pharmaceuticals, Inc., and Purdue Pharma LP
We
also face competition in the generic pharmaceutical market. The principal competitive factors in the generic pharmaceutical market
include: (i) introduction of other generic drug manufacturers’ products in direct competition with our products under development,
(ii) introduction of authorized generic products in direct competition with any of our products under development, particularly
if such products are approved and sold during exclusivity periods, (iii) consolidation among distribution outlets through mergers
and acquisitions and the formation of buying groups, (iv) ability of generic competitors to quickly enter the market after the
expiration of patents or exclusivity periods, diminishing the amount and duration of significant profits, (v) the willingness
of generic drug customers, including wholesale and retail customers, to switch among pharmaceutical manufacturers, (vi) pricing
pressures and product deletions by competitors, (vii) a company’s reputation as a manufacturer and distributor of quality
products, (viii) a company’s level of service (including maintaining sufficient inventory levels for timely deliveries),
(ix) product appearance and labeling and (x) a company’s breadth of product offerings.
Sources
and Availability of Raw Materials; Manufacturing
A
significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special
risks of doing business abroad, including:
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greater
possibility for disruption due to transportation or communication problems;
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the
relative instability of some foreign governments and economies;
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interim
price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds,
or fluctuations in currency exchange rates; and,
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uncertainty
regarding recourse to a dependable legal system for the enforcement of contracts and other rights.
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While
we currently obtain the raw materials that we need from over 20 suppliers, some materials used in our products are currently available
from only one supplier or a limited number of suppliers. The FDA requires identification of raw material suppliers in applications
for approval of drug products. If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could
delay the manufacture of the drug involved.
We
have acquired pharmaceutical manufacturing equipment for manufacturing our products. We have registered our facilities with the
FDA and the DEA.
Please
see the Risk Factor in Part I, Item 1A entitled “
We are dependent on a small number of suppliers for our raw materials
and any delay or unavailability of raw materials can materially adversely affect our ability to produce products
”.
Dependence
on One or a Few Major Customers
Each
year we have had one or a few customers that have accounted for a large percentage of our limited revenues, therefore the termination
or restructuring of a contract with a customer may result in the loss of material amount or substantially all of our revenues.
We are constantly working to develop new relationships with existing or new customers, but despite these efforts we may not, at
the time that any of our current contracts expire, have other contracts in place generating similar or material revenue. We have
agreements with Epic, Precision Dose and Ascend for the licensing, sales and distribution of products that we manufacture. We
are currently renegotiating a licensing contract with Epic, which may result in the termination of an existing contract or an
amended licensing contract that is materially different from that already in place. We receive revenues to manufacture these products
and also receive a profit split or royalties based on in-market sales of the products. Please see the Risk Factor in Part I, Item
1A entitled “
We depend on a limited number of customers and any reduction, delay or cancellation of an order from these
customers or the loss of any of these customers could cause our revenue to decline
.”
Our
Reporting Segments
We currently operate
in two segments, which are products whose marketing approvals were secured via an ANDA and products whose marketing approvals
were secured via an NDA. ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded
pharmaceuticals. For the years ended March 31, 2019 and 2018 revenue from our ANDA segment was $6.6 million and $6.5 million respectively.
For the years ended March 31, 2019 and 2018 revenue from our NDA segment was $1.0 million and $1.0 million, respectively.
Segment
information is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have
determined to be the chief executive office, for the purposes of making decisions about allocating resources and assessing performance
of the Company. There are currently no intersegment revenues. Asset information by operating segment is not presented below since
the chief operating decision maker does not review this information by segment.
Employees
As of June 14, 2019,
we had 35 full time employees. Full-time employees are engaged in operations, administration, research, and development. None
of our employees is represented by a labor union and we have never experienced a work stoppage. We believe our relationship with
our employees to be good. However, our ability to achieve our financial and operational objectives depends in large part upon
our continuing ability to attract, integrate, retain, and motivate highly qualified personnel, and upon the continued service
of our senior management and key personnel.
Available
Information
We
file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a)
or 15(d) of the Exchange Act electronically with the Securities and Exchange Commission, or SEC. The SEC maintains an Internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is
http://www.sec.gov
.
You
may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and
amendments to those reports on the day of filing with the SEC on our website at
http://www.Elitepharma.com
under the Investor
Relations tab for SEC Filings or by contacting the Investor Relations Department by calling (518) 398-6222 or sending an e-mail
message to
dianne@elitepharma.com
.
ITEM
1A. RISK FACTORS
An
investment in the Company’s Common Stock involves a high degree of risk. You should carefully consider the risks described
below as well as other information provided to you in this report, including information in the section of this document entitled
“
Forward Looking Statements.
” The risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business
operations. If any of the following risks actually occur, our business, financial condition or results of operations could be
materially adversely affected, the value of our Common Stock could decline, and you may lose all or part of your investment.
In
addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating
an investment in us and in analyzing our forward-looking statements.
Risks
Related to Our Business
Our
revenues and operating results could fluctuate significantly
Our
revenues and operating results may vary significantly from year-to-year and quarter-to-quarter as well as in comparison to the
corresponding quarter of the preceding year. Variations my result from one or more factors, including, without limitation:
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Timing
of approval of applications filed with the FDA;
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Timing
of process validation, product launches and market acceptance of products launched;
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Changes
in the amounts spent to research, develop, acquire, license or promote new and existing
products;
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Results
of clinical trial programs;
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Serious
or unexpected health or safety concerns with our products, brand products which we have
genericized, products currently under development or any other product candidates;
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Introduction
of new products by others that render our products obsolete or noncompetitive;
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The
ability to maintain selling prices and gross margin on our products;
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The
cost and outcome of litigation, in the event that such occurs in relation to, without
limitation, intellectual property issues, regulatory or other matters;
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The
ability to comply with complex and numerous governmental regulations and regulatory authorities
which oversee and regulate many aspects of our business and operations;
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Changes
in coverage and reimbursement policies of health plans and other health insurers, including
changes to Medicare, Medicaid, and similar state programs, especially in relation to
those products that are currently manufactured, under development or identified for future
development by the Company;
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Increases
in the cost of raw materials contained within our products;
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Manufacturing
and supply interruptions, including product rejections or recalls due to failure to comply
with manufacturing specifications;
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Timing
of revenue recognition relating to our licensing and other agreements;
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The
ability to avoid infringing the intellectual property of others;
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The
ability to protect our intellectual property from being acquired by other entities;
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Our
ability to manage growth and integrate acquired products and assets successfully; and
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The
addition or loss of customers.
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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
of the variation(s).
We
have a relatively limited operating history, which makes it difficult to evaluate our future prospects.
Although
we have been in operation since 1990, we have a relatively short operating history and limited financial data upon which you may
evaluate our business and prospects. In addition, our business model is likely to continue to evolve as we attempt to expand our
product offerings and our presence in the generic pharmaceutical market. As a result, our potential for future profitability must
be considered in view of the risks, uncertainties, expenses, and difficulties frequently encountered by companies that are attempting
to move into new markets and continuing to innovate with new and unproven technologies. Some of these risks relate to our potential
inability to:
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obtain
regulatory approval of our products;
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manage
our growth, control expenditures and align costs with revenues;
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attract,
retain, and motivate qualified personnel; and respond to competitive developments.
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If
we do not effectively address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability
or successfully develop any products, resulting in a material adverse effect on Elite’s business, results of operations,
financial condition, and cash flow and ability to operate in the future.
We
have not been profitable and expect future losses.
To date, we have not
been profitable, and we may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have
sustained losses from operations in each year since our incorporation in 1990. During the years ended March 31, 2019 and 2018,
we incurred net losses from operations of approximately $9.2 million and $9.1 million, respectively. In addition, as noted below,
the auditor’s opinion on the financial statements for the year ended March 31, 2019 is qualified with respect to there being
substantial doubt as to the Company’s ability to continue as a going concern and we expect to continue to incur losses until
we are able to generate sufficient revenues to support our operations and offset operating costs. Failure to generate such sufficient
revenues will have a material adverse effect on our business, results of operations, financial condition, cash flow and ability
to operate in the future.
We
most likely will require additional financing to meet our business objectives.
We
most likely will need additional funding to accomplish our plans to conduct the clinical development and commercialization of
a range of multiple abuse resistant opioids or initiate, continue or complete the development of additional generic products already
identified for development or currently in development.
As
of March 31, 2019, we had cash on hand of approximately $2.3 million and a working capital surplus of $2.0 million, and, for the
fiscal year ended March 31, 2019, we had losses from operations totaling $9.2 million, net other expenses totaling $0.8 million
and net loss of $9.3 million.
On
May 1, 2017, we entered into another purchase agreement (the “
2017 LPC Purchase Agreement
”), together with
a registration rights agreement (the “
2017 LPC Registration Rights Agreement
”), with Lincoln Park. Under the
terms and subject to the conditions of the 2017 LPC Purchase Agreement, we have the right to sell to and Lincoln Park is obligated
to purchase up to $40 million in shares of our common stock, subject to certain limitations, from time to time, over the 36-month
period commencing on June 5, 2017.
The
extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price
of our common stock, which has decreased from $0.166 on May 1, 2017 to $0.099 on March 31, 2019, and the extent to which we are
able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove unavailable
or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Even
if we sell all shares under the 2017 LPC Purchase Agreement, we may still need additional capital to fully implement our business,
operating and development plans. For more information on the Lincoln Park Capital transaction, see Part II, Item 7 “
Management’s
Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources; Lincoln Park Capital
”.
While
growth in our current generic product line, consisting of Phentermine Tablets, Phentermine Capsules, Phendimetrazine Tablets,
Naltrexone Tablets, Isradipine Capsules, Oxy IR, Trimipramine Capsules, Methadone Tablets and Amphetamine IR Tablets, combined
with manufacturing, profit split and royalty revenues earned pursuant to the Lannett Alliance, the Glenmark Alliance, the Precision
Dose License Agreement, from sales of Oxy IR by Epic, and successful commercialization of other products in our product development
pipeline, may lead to eventual profitability, there can be no assurances of Elite becoming profitable. Furthermore, there can
be no assurances of the continuation revenues being earned from the current generic product line, no assurances of Elite’s
successful commercialization of other products in our development pipeline, and no assurances of Elite’s ability to continue
as a going concern. In addition, there can be no assurances of Elite being able to raise additional funds in a timely manner,
on acceptable terms, if needed to support commercial operations, whether from the 2017 LPC Purchase Agreement or otherwise, 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.
As
noted in the next risk factor, we will need to increase our authorized shares of Common Stock.
If
we are unable to increase our authorized shares of common stock, our ability to raise additional funds most likely will be materially
adversely affected. Our inability to increase our authorized shares also will result in a requirement to pay significant annual
dividends pursuant to our outstanding shares of Series J Preferred Stock.
As
of June 14, 2019, all of our 995,000,000 authorized shares of Common Stock were issued or reserved for issuance upon conversion
of our outstanding shares of Series J Preferred Stock, exercise of outstanding option and warrants, as well as issuance pursuant
to the Purchase Agreement with Lincoln Park Capital. To meet our obligations under the foregoing instruments and to raise additional
funding through the sale of our common stock, we need to increase the number of authorized shares of our common stock.
Pursuant to the terms
of the Series J Preferred Stock we are obligated to use our best efforts to obtain shareholder approval to increase the number
of authorized shares to an amount that is sufficient to allow the issuance of Common Stock pursuant to conversion of all of the
outstanding shares of Series J Preferred Stock by April 28, 2019. Furthermore, if such shareholder approval is not timely obtained
and our authorized shares of Common Stock are not sufficiently increased by April 28, 2021, Nasrat Hakim, the holder of the Series
J Preferred Stock, is entitled to an annual dividend equal to twenty percent of the stated value ($1,000 per share) of Series
J Preferred Stock commencing on such date. We plan on holding an annual meeting of shareholders during the calendar year 2019,
at which time we will seek an increase in our authorized shares of Common Stock (the “Proposal”).
If
our shareholders do not approve the Proposal, our ability to raise additional funds most likely will be materially adversely affected
and we will be required to pay the dividend on the outstanding shares of Series J Preferred Stock.
Our
independent auditors have expressed substantial doubt about our ability to continue as a going concern.
As
of March 31, 2019, we had cash on hand of approximately $2.3 million and a working capital surplus of $2.0 million, and, for the
fiscal year ended March 31, 2019, we had losses from operations totaling $9.2 million, net other expenses totaling $0.8 million
and net loss of $9.3 million. Because of the foregoing, in their report on our financial statements for the year ended March 31,
2019, our independent auditors included an explanatory paragraph regarding their substantial doubt about our ability to continue
as a going concern. We will continue to experience net operating losses in the foreseeable future. Our ability to continue as
a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities, increasing sales, reducing overhead or obtaining loan from various
financial institutions where possible.
We
have identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely
affect our ability to report our financial condition, cash flows and results of operations in a timely and accurate manner and/or
increase the risk of future misstatements, which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act. Based on reviews conducted by management, the Company’s Independent Auditors and
specific guidance from subject matter experts engaged by the Company, we have concluded that material weaknesses in the Company’s
internal controls over financial report existed. 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 Company has identified
certain remediation actions and is in the process of implementing them, but such efforts are not complete, most likely require
the retention of additional personnel or consultants (which is subject to the Company’s financial condition). Although no
material misstatement of our historical financial statements was identified, if we are unable to complete our remediation in a
timely manner or if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses
in our internal controls are discovered or occur in the future, it may materially adversely affect our ability to report our financial
condition and results of operations in a timely and accurate manner and there will continue to be an increased risk of future
misstatements. In our periodic review and evaluation of 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 have been unable to timely remediate
our existing 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
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 accurate 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. Please see Item 9A “Controls And
Procedures” in Part II.
We
depend on a limited number of customers and any reduction, delay or cancellation of an order from these customers or the loss
of any of these customers could cause our revenue to decline.
Each
year we have had one or a few customers that have accounted for a large percentage of our limited revenues therefore the termination
of a contract with a customer may result in the loss of substantially all of our revenues. We are constantly working to develop
new relationships with existing or new customers, but despite these efforts we may not, at the time that any of our current contracts
expire, have other contracts in place generating similar or material revenue. We have agreements with Epic and Precision Dose
for the sales and distribution of products that we manufacture. We receive revenues to manufacture these products and also receive
a profit split or royalties based on in-market sales of the products.
In
addition, since a significant portion of our revenues is derived from a relatively few customers, any financial difficulties experienced
by any one of these customers, or any delay in receiving payments from any one of these customers, could have a material adverse
effect on our business, results of operations, financial condition, and cash flows.
A
notice of default was issued by the New Jersey Economic Development Authority in relation to prior obligations of our tax-exempt
bonds. Although we are current in our payments under these bonds, if the principal balances due under these bonds are accelerated
pursuant to the notice of default, our ability to operate in the future will be materially and adversely affected.
Although
we are current in our payments under the NJEDA Bonds, we previously were in default and a notice of default was issued in March
2009. There can be no assurances of Elite making principal and interest payments in the amounts and on the dates specified the
NJEDA Bond agreement. The failure by Elite to make principal and/or interest payments required by the NJEDA Bonds, could result
in the increased possibility of an acceleration of amounts due pursuant to such notice of default previously issued, with such
an acceleration having a material adverse effect on Elite’s business, results of operations, financial condition, cash flow
and ability to operate in the future.
For
more information on the NJEDA Bonds, see Part II, Item 7 “
Management’s Discussion and Analysis of Financial Condition
and Results of Operations; Liquidity and Capital Resources; NJEDA Bonds
”.
Elite’s
pipeline consists of products in various stages of development, including products in early development.
Elite’s
product pipeline, including 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. Additionally, Elite has one approved generic
product for which a PAS for transfer of manufacturing site has been filed with the FDA. Development is subject to risks. We
cannot assure you that development will be successful, or that during development unexpected delays might occur or additional
costs might be incurred. Failure to bring to commercialization any of the products already in development by Elite will have
a material adverse effect on Elite’s ability to operate in the future.
The
failure to successfully identify and develop additional generic products or to introduce these generic products on a timely basis
most likely will result in a material adverse effect on our ability to operate in the future.
We
may not be successful in our efforts to continue to create a pipeline of product candidates or develop commercially successful
products. Identifying, developing and obtaining regulatory approval and commercializing additional product candidates is prone
to all 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
initially expected. No assurances can be given that we will be able to successfully identify additional product candidates, advance
any additional product candidates through the development process or successfully commercialize any such additional product candidates.
The inability or failure of Elite to successfully identify, develop and commercialize additional product candidates, most likely
will have a material adverse effect on our business, results of operations, financial condition, cash flow and ability to operate
in the future.
The
failure to successfully develop, commercialize and market new products most likely will result in a material adverse effect on
our ability to operate in the future.
To sustain current
operations, engender business growth, achieve current and future revenues and profitability, we significantly depend on our ability
to successfully develop, commercialize and market new pharmaceutical products, including, without limitation, our own products
as well as those developed with SunGen. 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.
Products we are currently developing may not receive the regulatory approvals or clearances necessary for us to market them and,
if approved, we may be unable to successfully commercialize them on a timely basis or at all, or if commercialized, revenues and
profits achieved from the sale of such products might not reach levels that provide sufficient return on those costs incurred
during the commercialization process.
The
successful commercialization of a product is subject to a number of factors, including:
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The
timely filing of any NDA, ANDA or other regulatory submission applicable to our product
candidates;
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Any
adverse development or perceived adverse development with respect to the applicable regulatory
agency’s review of such regulatory submission and approval for the indication sought;
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The
effectiveness, ease of use and safety of our products as compared to existing products;
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Customer
demand and the willingness of physicians and customers to adopt our products over products
with which they may have more loyalty or familiarity and overcoming any biases towards
our products;
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The
cost of our product compared to alternative products and the pricing and commercialization
strategies of our competitors;
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The
success of our launch and marketing efforts;
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Adverse
publicity about us, our products, our competitors and their products or the industry
as a whole or favorable publicity about competitors;
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The
advent of new and innovative alternative products; and
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Any
unforeseen issues or adverse developments in connection with a product and any resulting
litigation or regulatory scrutiny and harm to our reputation or the reputation or acceptance
of the product in the market.
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In
addition, there are many risks associated with developing, commercializing and marketing new products that are beyond our control.
For example, without limitation, our collaboration partner(s) may decide to make substantial changes to a product’s formulation
or design, may experience financial difficulties or may have limited financial resources. Any of the foregoing may delay the development,
commercialization and/or marketing of new products. In addition, if a codeveloper on a new product terminates our collaboration
agreement or does not perform under the agreement, we may experience delays and additional costs in developing and marketing that
product, with no assurances of us having the resources that may be required to overcome such delays or additional costs that were
beyond our control.
We conduct research
and development to enable us to manufacture and market pharmaceutical products in accordance with specific government regulations.
Our drug development efforts relating to SequestOx and certain generics are focused on technically difficult-to-formulate products
and/or products that require advanced manufacturing technology. Typically, expenses related to research, development and regulatory
approval of compounds for SequestOx, which is a branded pharmaceutical product are significantly greater than those expenses associated
with generic products. Expanded research and development efforts are required, resulting in increased research expenses. Because
of the inherent risk associated with research and development efforts in the healthcare industry, particularly with respect to
new drugs, our research and development expenditures may not result in the successful regulatory approval and introduction of
new pharmaceutical products and failure in the development of any new product can occur at any point in the process, including
late in the process after substantial investment. Also, after we submit a regulatory application, the relevant governmental health
authority may require that we conduct additional studies, including, for example, studies to assess the product’s interaction
with alcohol. As a result, we may be unable to reasonably predict the total research and development costs to develop a particular
product and there is a significant risk that the funds we invest in research and development will not generate financial returns.
In addition, our operating results and financial condition may fluctuate as the amount we spend to research and develop, commercialize,
acquire or license new products, technologies and businesses changes. Much of the preceding occurred with the development of SequestOx,
which has not yet received marketing approval from the FDA, with material adverse effects on our business, results of operations,
financial condition, cash flows and ability to operate resulting in the past, as well as the risk remaining for the future.
If
our manufacturing facilities are unable to manufacture our products or the manufacturing process is interrupted due to failure
to comply with regulations or for other reasons, it could have a material adverse impact on our business.
If
our manufacturing facility or the facilities of any of our suppliers fail to comply with regulatory requirements or encounter
other manufacturing difficulties, it could adversely affect our ability to manufacture and supply products. All facilities and
manufacturing processes used for the manufacture of pharmaceutical products are subject to inspection by regulatory agencies at
any time and must be operated in conformity with current good manufacturing practice (“cGMP”) and, in the case of
controlled substances, DEA regulations. Compliance with the FDA’s cGMP and DEA requirements applies to both drug products
seeking regulatory approval and to approved drug products. In complying with cGMP requirements, pharmaceutical manufacturing facilities
must continually expend significant time, money and effort in production, recordkeeping, quality assurance and quality control
so that their products meet applicable specifications and other requirements for product safety, efficacy and quality. Failure
to comply with applicable legal requirements subjects us, our manufacturing facilities and the facilities of our third party suppliers
to possible legal or regulatory action, including, without limitation, shutdown, which may adversely affect our ability to supply
the product. Additionally, our manufacturing facilities, and those of our third party suppliers may face other significant disruptions
due to labor strikes, failure to reach acceptable agreement with labor unions, infringement of intellectual property rights, vandalism,
natural disaster, storm or other environmental damage, civil or political unrest, export or import restrictions or other events.
Were we not able to manufacture products at our manufacturing facilities, or were our third party suppliers unable to manufacture
products at their facilities because of regulatory, business or any other reasons, the manufacture and marketing of these products
would be interrupted. This could have a material adverse impact on our business, results of operation, financial condition, cash
flows, competitive position and ability to operate.
We
may decide to sell or withdraw approved ANDAs, which could result in a material adverse effect on our ability to operate in the
future.
We
may, from time to time, sell and/or withdraw approved ANDAs if we determine that the costs of maintaining such ANDAs is excessive
when compared to their actual current value and their perceived value and place in our strategic plans. For example, and without
limitation, during the twelve months ended March 31, 2019, 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, 2018 through
September 30, 2019, the annual fee for large sized ANDA holders was approximately $1.1 million greater than the fee for medium
sized ANDA holders. After conducting a study of ANDAs held, we identified three ANDAs relating to Hydroxyzine Tablets and three
ANDAs relating to Phentermine Capsules for sale or if we were not able to sell them, withdrawal, which, after such disposal, qualified
us to once again self identify as a medium sized ANDA holder on the measurement date, thereby qualifying for an annual fee that
was $1.1m lower, based on the latest published fee schedule.
Although
our expectations are to engage only in the sale or withdrawal of ANDAs if they advance or otherwise support our overall strategy,
any such ANDA sale by definition reduces the size and scope of our business, with a direct correlation to opportunities with respect
to certain markets, products or therapeutic categories, resulting in the potential for any such ANDA sale or withdrawal having
a material adverse effect on our business, results of operations, financial condition, cash flow and ability to operate in the
future.
The
pharmaceutical industry is heavily regulated, which creates uncertainty about our ability to bring new products to market and
imposes substantial compliance costs on our business in relation to product development as well as commercial operations.
Governmental
authorities such as the FDA impose substantial requirements on the development, manufacture, holding, labeling, marketing, advertising,
promotion, distribution and sale of therapeutic pharmaceutical products through lengthy and detailed laboratory and clinical testing
and other costly and time-consuming procedures. In addition, before obtaining regulatory approvals for certain generic products,
we must conduct limited bioequivalence studies and other research to show comparability to the branded products. A failure to
obtain satisfactory results in required pre-marketing trials may prevent us from obtaining required regulatory approvals. The
FDA may also require companies to conduct post-approval studies and post-approval surveillance regarding their drug products and
to report adverse events.
Before
obtaining regulatory approvals for the sale of any of our new product candidates, we must demonstrate through preclinical studies
and clinical trials that the product is safe and effective for each intended use. Preclinical and clinical studies may fail to
demonstrate the safety and effectiveness of a product. Likewise, we may not be able to demonstrate through clinical trials that
a product candidate’s therapeutic benefits outweigh its risks. Even promising results from preclinical and early clinical
studies do not always accurately predict results in later, large scale trials. A failure to demonstrate safety and efficacy could
or would result in our failure to obtain regulatory approvals. Clinical trials can be delayed for reasons outside of our control,
which can lead to increased development costs and delays in regulatory approval. For example, due to competition to enroll patients
in clinical trials, there have been instances of delays in clinical development of our products in the past, as a result of patients
not enrolling in clinical trials at the rate expected, or patients dropping out of trials after enrolling, at rates that were
higher than expected. In addition, we rely on collaboration partners and third-party subject matter experts that may recommend
changes in trial protocol and design enhancements that are put into effect, or encounter clinical trial compliance-related issues,
which may also delay clinical trials. Product supplies may be delayed or be insufficient to treat the patients participating in
the clinical trials, or manufacturers or suppliers may not meet the requirements of the FDA or foreign regulatory authorities,
such as those relating to Current Good Manufacturing Practices. We also may experience delays in obtaining, or we may not obtain,
required initial and continuing approval of our clinical trials from institutional review boards. We cannot confirm to you that
we will not experience delays or undesired results in these or any other of our clinical trials.
We
cannot confirm to you that the FDA will approve, clear for marketing or certify any products developed by us or that such approval
will not subject the marketing of our products to certain limits on indicated use. The FDA may not agree with our assessment of
the clinical data or they may interpret it differently. Such regulatory authorities may require additional or expanded clinical
trials. Any limitation on use imposed by the FDA or delay in or failure to obtain FDA approvals or clearances of products developed
by us would adversely affect the marketing of these products and our ability to generate product revenue, which would adversely
affect our financial condition and results of operations.
In
addition, with respect specifically to pharmaceutical products, the submission of a New Drug Application (NDA), such as SequestOx™,
or ANDA to the FDA with supporting clinical safety and efficacy data, for example, does not guarantee that the FDA will grant
approval to market the product. Meeting the FDA’s regulatory requirements to obtain approval to market a drug product, which
varies substantially based on the type, complexity and novelty of the pharmaceutical product, typically takes years and is subject
to uncertainty.
Additional
delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval.
Although the FDA is not required to follow the recommendations of its Advisory Committees, it usually does. A negative Advisory
Committee meeting could signal a lower likelihood of approval, although the FDA may still end up approving our application. Regardless
of an Advisory Committee meeting outcome or the FDA’s final approval decision, public presentation of our data may shed
positive or negative light on our application.
Some
drugs are available in the United States that are not the subject of an FDA-approved NDA. In 2011, the FDA’s Center for
Drug Evaluation and Research (“
CDER
”) Office of Compliance modified its enforcement policy with regard to the
marketing of such “unapproved” marketed drugs. Under CDER’s revised guidance, the FDA encourages manufacturers
to obtain NDA approvals for such drugs by requiring unapproved versions to be removed from the market after an approved version
has been introduced, subject to a grace period at the FDA’s discretion. This grace period is intended to allow an orderly
transition of supply to the market and to mitigate any potential related drug shortage. Depending on the length of the grace period
and the time it takes for subsequent applications to be approved, this may result in a period of de facto market exclusivity to
the first manufacturer that has obtained an approved NDA for the previously unapproved marketed drug. We may seek FDA approval
for certain unapproved marketed drug products through the 505(b)(2) regulatory pathway. Even if we receive approval for an NDA
under Section 505(b)(2), the FDA may not take timely enforcement action against companies marketing unapproved versions of the
drug; therefore, we cannot be sure that that we will receive the benefit of any de facto exclusive marketing period or that we
will fully recoup the expenses incurred to obtain an approval. In addition, certain competitors and others have objected to the
FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged,
this could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
Moreover,
even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated
uses for which the products may be marketed or to other conditions of approval or may contain requirements for costly post-marketing
testing and surveillance to monitor the safety or efficacy of the products.
The
ANDA approval process for a new product varies in time, is difficult to estimate and can vary significantly, from as little as
10 months from the date of application, to several years or more. Furthermore, ANDA approvals, if granted, may not include all
indications for which the Company may seek to market each product.
Further,
once a product is approved or cleared for marketing, failure to comply with applicable regulatory requirements can result in,
among other things, suspensions or withdrawals of approvals or clearances, seizures or recalls of products, injunctions against
the manufacture, holding, distribution, marketing and sale of a product, and civil and criminal sanctions. Furthermore, changes
in existing regulations or the adoption of new regulations could prevent us from obtaining, or affect the timing of, future regulatory
approvals or clearances. Meeting regulatory requirements and evolving government standards may delay marketing of our new products
for a considerable period of time, impose costly procedures upon our activities and result in a competitive advantage to larger
companies that compete against us.
Based
on scientific developments, post-market experience, or other legislative or regulatory changes, the current FDA standards of review
for approving new pharmaceutical products, or new indications or uses for approved or cleared products, are sometimes more stringent
than those that were applied in the past.
Some
new or evolving FDA review standards or conditions for approval or clearance were not applied to many established products currently
on the market, including certain opioid products. As a result, the FDA does not have as extensive safety databases on these products
as on some products developed more recently. Accordingly, we believe the FDA has expressed an intention to develop such databases
for certain of these products, including many opioids. In particular, the FDA has expressed interest in specific chemical structures
that may be present as impurities in a number of opioid narcotic active pharmaceutical ingredients, such as oxycodone, which based
on certain structural characteristics and laboratory tests may indicate the potential for having mutagenic effects. FDA has required,
and may continue to require, more stringent controls of the levels of these impurities in drug products for approval.
Also,
the FDA may require labeling 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 labeling 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 labeling. Furthermore, new
data and information, including information about product misuse or abuse at the user level, may lead government agencies, professional
societies, practice management groups or patient or trade organizations to recommend or publish guidance or guidelines related
to the use of our products, which may lead to reduced sales of our products.
The
FDA and the DEA have important and complementary responsibilities with respect to our business. The FDA administers an application
and post-approval monitoring process to confirm that products that are available in the market are safe, effective, and consistently
of uniform, high quality. The DEA administers registration, drug allotment and accountability systems to satisfy against loss
and diversion of controlled substances. Both agencies have trained investigators that routinely, or for cause, conduct inspections,
and both have authority to seek to enforce their statutory authority and regulations through administrative remedies as well as
civil and criminal enforcement actions. The FDA regulates and monitors the quality of drug clinical trials to provide human subject
protection and to support marketing applications. The FDA may place a hold on a clinical trial and may cause a suspension or withdrawal
of product approvals if regulatory standards are not maintained. The FDA also regulates the facilities, processes, and procedures
used to manufacture and market pharmaceutical products in the U.S. Manufacturing facilities must be registered with the FDA and
all products made in such facilities must be manufactured in accordance with the latest cGMP regulations, which are enforced by
the FDA. Compliance with clinical trial requirements and cGMP regulations requires the dedication of substantial resources and
requires significant expenditures. In the event an approved manufacturing facility for a particular drug is required by the FDA
to curtail or cease operations, or otherwise becomes inoperable, or a third-party contract manufacturing facility faces manufacturing
problems, obtaining the required FDA authorization to manufacture at the same or a different manufacturing site could result in
production delays, which could adversely affect our business, results of operations, financial condition, and cash flow and ability
to operate in the future.
The
FDA is authorized to perform inspections of U.S. and foreign facilities under the FFDCA. At the end of such an inspection, FDA
could issue a Form 483 Notice of Inspectional Observations, which could cause us to modify certain activities identified during
the inspection. Following such inspections, the FDA may issue an untitled letter as an initial correspondence that cites violations
that do not meet the threshold of regulatory significance of a Warning Letter. FDA guidelines also provide for the issuance of
Warning Letters for violations of “regulatory significance” for which the failure to adequately and promptly achieve
correction may be expected to result in an enforcement action. FDA also may issue Warning Letters and untitled letters in connection
with events or circumstances unrelated to an FDA inspection.
Similar
to other pharmaceutical companies, during Fiscal 2017, our facilities were subject to routine and new-product related inspections
by the FDA. These inspections resulted in FDA Form 483 observations and a warning letter regarding post marketing adverse drug
experience reporting. We have responded to all inspection observations within the required time frame and have implemented, or
are continuing to implement, the corrective action plans as agreed with the relevant regulatory agencies. Please also see the
risk factor titled “
We received a Warning Letter from the U.S. Food and Drug Administration regarding Post marketing
Adverse Drug Experience reporting. The Warning Letter does not restrict the production or shipment of any of the Company’s
products, or the sale or marketing of the Company’s products, however, unless and until the Company is able to correct the
outstanding issues identified, to the FDA’s satisfaction, the FDA may withhold approval of pending drug applications or
take other actions that would have a material adverse impact on the Company
”
.
Many
of our products contain controlled substances. The stringent DEA regulations on our use of controlled substances include restrictions
on their use in research, manufacture, distribution, and storage. A breach of these regulations could result in imposition of
civil penalties, refusal to renew or action to revoke necessary registrations, or other restrictions on operations involving controlled
substances. In addition, failure to comply with applicable legal requirements subjects the manufacturing facilities of our subsidiaries
and manufacturing partners to possible legal or regulatory action, including shutdown. Any such shutdown may adversely affect
their ability to supply us with product and thus, our ability to market affected products. This could have a negative impact on
our business, results of operations, financial condition, cash flows and competitive position. See also the risk described under
the caption “
The DEA limits the availability of the active ingredients used in many of our current products and products
in development, as well as the production of these products, and, as a result, our procurement and production quotas may not be
sufficient to meet commercial demand or complete clinical trials.
” In addition, we are subject to the Federal Drug Supply
Chain Security Act (DSCSA). The U.S. government has enacted DSCSA which requires development of an electronic pedigree to track
and trace each prescription drug at the salable 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 labeling,
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, labeling, promotion
and sale of our products are subject to extensive regulation by federal agencies, including, without limitation, the FDA, DEA,
FTC, Consumer Product Safety Commission, and Environmental Protection Agency, among others. We are also subject to state and local
laws, regulations, and agencies in New Jersey and elsewhere. Such regulations are also subject to change by the relevant federal,
state and local agencies. For instance, beginning from January 1, 2015, manufacturers, wholesale distributors, and repackages
of certain prescription drugs are required to provide and capture certain product tracing information under the Drug Quality and
Security Act (“
DQSA
”). Title II of the DQSA, referred to as the Drug Supply Chain Security Act, requires companies
in certain prescription drugs’ chain of distribution to build electronic, interoperable systems to identify and trace the
products as they are distributed in the United States. Compliance with the DQSA or any future federal or state electronic pedigree
requirements may increase the Company’s operational expenses and impose significant administrative burdens.
Regulatory
agencies such as the FDA regularly inspect our manufacturing facilities and the facilities of our third-party suppliers. The failure
of the Northvale Facility, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may
lead to breach of representations made to our customers or to regulatory or government action against us related to products made
in that facility. We have in the past received and successfully resolved Form 483 observations from the FDA regarding certain
operations within our manufacturing network. Although we remain committed to continuing to improve our quality control and manufacturing
practices, we cannot be assured that the FDA will continue to be satisfied with our quality control and manufacturing systems
and standards. If we receive any future FDA observations, we may be subject to regulatory action including, among others, monetary
sanctions or penalties, product recalls or seizure, injunctions, total or partial suspension of production and/or distribution,
and suspension or withdrawal of regulatory approvals. Further, other federal agencies, our customers and partners in our alliance,
development, collaboration, and other partnership agreements with respect to our products and services may take any such Form
483 observations into account when considering the award of contracts or the continuation or extension of such partnership agreements.
If we receive any future Form 483 observations or warning letters from the FDA, our business, consolidated results of operations
and consolidated financial condition could be materially and adversely affected.
With
respect to environmental, safety and health laws and regulations, we cannot accurately predict the outcome or timing of future
expenditures that we may be required to make in order to comply with such laws as they apply to our operations and facilities.
We are also subject to potential liability for the remediation of contamination associated with both present and past hazardous
waste generation, handling, and disposal activities. We are subject periodically to environmental compliance reviews by environmental,
safety, and health regulatory agencies. Environmental laws are subject to change and we may become subject to stricter environmental
standards in the future and face larger capital expenditures in order to comply with environmental laws.
Compliance
with federal and state and local law regulations, including compliance with any newly enacted regulations, requires substantial
expenditures of time, money, and effort to ensure full technical compliance. Failure to comply with the FDA, DEA, EPA and other
governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products,
exposure to product liability claims, total or partial suspension of production or distribution, suspension of the FDA’s
review of NDAs or ANDAs, enforcement actions, injunctions and civil or criminal prosecution, any of which could have a material
and adverse effect on our business, results of operations and financial condition.
If
pharmaceutical companies are successful in limiting the use of generics through their legislative, regulatory and other efforts,
our sales of generic products may suffer.
Many
pharmaceutical companies increasingly have used state and federal legislative and regulatory means to delay generic competition.
These efforts have included:
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Pursuing
new patents for existing products which may be granted just before the expiration of earlier patents, which could extend patent
protection for additional years;
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Using
the Citizen Petition process (for example, under 21 C.F.R. s. 10.30) to request amendments
to FDA standards;
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Attempting
to use the legislative and regulatory process to have drugs reclassified or rescheduled
or to set definitions of abuse-deterrent formulations to protect patents and profits;
and
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Engaging
in state-by-state initiatives to enact legislation that restricts the substitution of
some generic drugs.
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If
pharmaceutical companies or other third parties are successful in limiting the use of generic products through these or other
means, our sales of generic products and our growth prospects may decline. A material decline in generic product sales will have
a material adverse effect on our results of operations, financial condition, cash flows and our ability to operate.
The
availability of third party reimbursement for our products is uncertain, and thus we may find it difficult to maintain current
price levels. Additionally, the market may not accept those products for which third party reimbursement is not adequately provided.
Our
ability to commercialize and generate revenues and profit splits relating to the sale of our products depends, in part, on the
extent to which reimbursement for the costs of these products is available from government healthcare programs, such as Medicaid
and Medicare, private health insurers and others. We cannot be certain that, over time, third party reimbursements for our products
will be adequate for us to maintain price levels sufficient for realization of an appropriate return on our investment. Government
payers, private insurers and other third party payers are increasingly attempting to contain healthcare costs by: (i) limiting
both coverage and the level of reimbursement (including adjusting co-pays) for drugs, (ii) refusing, in some cases, to provide
any coverage for off-label uses for drugs and (iii) requiring or encouraging, through more favorable reimbursement levels or otherwise,
the substitution of generic alternatives to branded drugs. The Trump Administration also has been targeting drug prices in ways
that could affect reimbursement for our products. For example, beginning in January 2019, Medicare Advantage Plans will be permitted
to apply “step therapy” to products covered under Part B, which could impact our ability to negotiate for favorable
product access in this sector. Additionally, in October 2018, President Trump announced a new initiative to contain drug costs
by establishing an “international pricing index” that would be used as a benchmark in deciding how much to pay for
Medicare Part B drugs. The Centers for Medicare and Medicaid Services (CMS) issued an Advance Notice of Proposed Rulemaking for
the Medicare Program that would reduce Part B drug spending and reimbursement in part based on the prices that manufacturers charge
to customers in foreign countries (also referred to as reference pricing). This proposal targets physician-administered drugs,
and it is therefore possible that any final rule could adversely affect reimbursement for certain products that we sell, and we
cannot anticipate the adverse impact of this or similar developments on our business. Additionally, the new Congress is considering
multiple proposals impacting healthcare. There can be no assurance as to which proposals, if any, will be adopted, the final terms
of any such proposals and the ultimate impact that such proposals would have on our business, but there can be no assurances given
that any such impact will not be materially detrimental to our business, results of operations, financial condition, cash flows
and ability to operate in the future.
If
we are unable to satisfy FDA regulatory requirements, we may not be able to commercialize our product candidates.
We
need FDA approval prior to marketing our product candidates in the United States of America. If we fail to obtain FDA approval
to market our product candidates, we will be unable to sell our product candidates in the United States of America and we will
not generate any revenue from the sale of such products.
This
regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of our product candidates,
is lengthy, expensive, and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence
from well-controlled clinical trials that our product candidates are both safe and effective for each indication where approval
is sought. Satisfaction of these requirements typically takes several years, and the time needed to satisfy them may vary substantially,
based on the type, complexity, and novelty of the pharmaceutical product. We cannot predict if or when we might submit for regulatory
approval any of our product candidates currently under development. Any approvals we may obtain may not cover all of the clinical
indications for which we are seeking approval. Also, an approval might contain significant limitations in the form of narrow indications,
warnings, precautions, or contra-indications with respect to conditions of use.
The
FDA has substantial discretion in the approval process and may either refuse to accept an application for substantive review or
may form the opinion after review of an application that the application is insufficient to allow approval of a product candidate.
If the FDA does not accept our application for review or approve our application, it may require that we conduct additional clinical,
preclinical or manufacturing validation studies and submit the data before it will reconsider our application. Depending on the
extent of these or any other studies that might be required, approval of any applications that we submit may be delayed by several
years, or we may be required to expend more resources than we have available. It is also possible that any such additional studies,
if performed and completed, may not be considered sufficient by the FDA to make our applications approvable. If any of these outcomes
occur, we may be forced to abandon our applications for approval.
We
will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products.
Whether or not an FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries
must still be obtained prior to manufacturing or marketing the product in those countries. The approval process varies from country
to country and the time needed to secure approval may be longer or shorter than that required for FDA approval. We cannot assure
you that clinical trials conducted in one country will be accepted by other countries or that approval of our product in one country
will result in approval in any other country.
Before
we can obtain regulatory approval, we need to successfully complete clinical trials, outcomes of which are uncertain.
In
order to obtain FDA approval to market a new drug product, we must demonstrate proof of safety and effectiveness in humans. To
meet these requirements, we must conduct extensive preclinical testing and “
adequate and well-controlled
” clinical
trials. Conducting clinical trials is a lengthy, time-consuming, and expensive process. Completion of necessary clinical trials
may take several years or more. Delays associated with products for which we are directly conducting preclinical or clinical trials
may cause us to incur additional operating expenses. The commencement and rate of completion of clinical trials may be delayed
by many factors, including, without limitation, for example:
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ineffectiveness
of our product candidate or perceptions by physicians that the product candidate is not safe or effective for a particular
indication;
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inability
to manufacture sufficient quantities of the product candidate for use in clinical trials;
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delay
or failure in obtaining approval of our clinical trial protocols from the FDA or institutional review boards;
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slower
than expected rate of patient recruitment and enrollment;
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inability
to adequately follow and monitor patients after treatment;
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difficulty
in managing multiple clinical sites;
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unforeseen
safety issues;
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government
or regulatory delays; and,
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clinical
trial costs that are greater than we currently anticipate.
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Even
if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and positive
results in early trials may not be indicative of success in later trials. A number of companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. Negative
or inconclusive results or adverse medical events during a clinical trial could cause us to repeat or terminate a clinical trial
or require us to conduct additional trials. We do not know whether our existing or any future clinical trials will demonstrate
safety and efficacy sufficiently to result in marketable products. Our clinical trials may be suspended at any time for a variety
of reasons, including if the FDA or we believe the patients participating in our trials are exposed to unacceptable health risks
or if the FDA finds deficiencies in the conduct of these trials.
Failures
or perceived failures in our clinical trials will directly delay our product development and regulatory approval process, damage
our business prospects, make it difficult for us to establish collaboration and partnership relationships, and negatively affect
our reputation and competitive position in the pharmaceutical community.
Because
of these risks, our research and development efforts may not result in any commercially viable products. Any delay in, or termination
of, our preclinical or clinical trials will delay the filing of our drug applications with the FDA and, ultimately, our ability
to commercialize our product candidates and generate product revenues. If a significant portion of these development efforts are
not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful,
our business, financial condition, and results of operations may be materially harmed.
If
our collaboration or licensing arrangements are unsuccessful, our revenues and product development may be limited.
We
have entered into several collaborations and licensing arrangements for the development of products. However, there can be no
assurance that any of these agreements will result in FDA approvals, or that we will be able to market any such finished products
at a profit. Collaboration and licensing arrangements pose the following risks:
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collaborations
and licensing arrangements may be terminated, in which case we will experience increased operating expenses and capital requirements
if we elect to pursue further development of the related product candidate;
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collaborators
and licensees may delay clinical trials and prolong clinical development, under-fund a clinical trial program, stop a clinical
trial, or abandon a product candidate;
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expected revenue might not be generated because milestones may not be achieved, and product candidates may not be developed;
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collaborators and licensees could independently develop, or develop with third parties, products that could compete with our future products;
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the terms of our contracts with current or future collaborators and licensees may not be favorable to us in the future;
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a collaborator or licensee with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product;
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disputes may arise delaying or terminating the research, development, or commercialization of our product candidates, or result in significant and costly litigation or arbitration; and,
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one or more third-party developers could obtain approval for a similar product prior to the collaborator or licensee resulting in unforeseen price competition in connection with the development product.
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If
we are unable to protect our intellectual property rights or avoid claims that we infringed on the intellectual property rights
of others, our ability to conduct business may be impaired.
Our
success depends on our ability to protect our current and future products and to defend our intellectual property rights. If we
fail to protect our intellectual property adequately, competitors may manufacture and market products similar to ours.
We
currently hold ten patents and we have three patent applications. 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
or become known, obtained, or independently developed by our competitors or by other entities. 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.
Litigation
is 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.
Litigation
concerning patents and proprietary rights 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.
Please
also see “
Item 3. Legal Proceedings
” below for further details.
The
pharmaceutical industry is highly competitive and subject to rapid and significant technological change, which could impair our
ability to implement our business model.
The
pharmaceutical industry is highly competitive, and we may be unable to compete effectively. 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 greater financial, research and development, marketing,
and other resources than we do. Such companies may develop new formulations and products, or may improve existing ones, more efficiently
than we can. Our success, if any, will depend in part on our ability to keep pace with the changing technology in the fields in
which we operate.
As
we expand our presence in the generic pharmaceuticals market our product candidates may face intense competition from brand-name
companies that have taken aggressive steps to thwart competition from generic companies. In particular, brand-name companies continue
to sell or license their products directly or through licensing arrangements or strategic alliances with generic pharmaceutical
companies (so-called “authorized generics”). No significant regulatory approvals are required for a brand-name company
to sell directly or through a third party to the generic market, and brand-name companies do not face any other significant barriers
to entry into such market. In addition, such companies continually seek to delay generic introductions and to decrease the impact
of generic competition, using tactics which include, without limitation:
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obtaining
new patents on drugs whose original patent protection is about to expire;
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filing
patent applications that are more complex and costly to challenge;
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filing
suits for patent infringement that automatically delay approval from the FDA;
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filing
citizens’ petitions with the FDA contesting approval of the generic versions of products due to alleged health and safety
issues;
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developing
controlled-release or other “next-generation” products, which often reduce demand for the generic version of the
existing product for which we may be seeking approval;
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changing
product claims and product labeling;
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developing
and marketing as over-the-counter products those branded products which are about to face generic competition; and,
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making
arrangements with managed care companies and insurers to reduce the economic incentives to purchase generic pharmaceuticals.
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These
strategies may increase the costs and risks associated with our efforts to introduce our generic products under development and
may delay or prevent such introduction altogether.
If
our product candidates do not achieve market acceptance among physicians, patients, health care payors and the medical community,
they will not be commercially successful, and our business will be adversely affected.
The
degree of market acceptance of any of our approved product candidates among physicians, patients, health care payors and the medical
community will depend on a number of factors, including, without limitation:
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acceptable
evidence of safety and efficacy;
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relative
convenience and ease of administration;
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the
prevalence and severity of any adverse side effects;
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availability
of alternative treatments;
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pricing
and cost effectiveness;
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effectiveness
of sales and marketing strategies; and,
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ability
to obtain sufficient third-party coverage or reimbursement.
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If
we are unable to achieve market acceptance for our product candidates, then such product candidates will not be commercially successful,
and our business will be adversely affected.
In
addition, even if we are able to obtain regulatory approvals for our new products, the success of those products as well as the
success of our previously approved products, is dependent upon market acceptance. Levels of market acceptance for our new products
could be affected by several factors, including, without limitation:
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the
availability of alternative products from our competitors;
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the
prices of our products relative to those of our competitors;
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the
timing of our market entry;
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the
ability to market our products effectively at the retail level;
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the
perception of patients and the healthcare community, including third-party payers, regarding the safety, efficacy and benefits
of our drug products compared to those of competing products; and,
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the
acceptance of our products by government and private formularies.
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Some
of these factors are not within our control, and our products may not achieve expected levels of market acceptance. Additionally,
continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are
being conducted by the industry, government agencies and others which can call into question the utilization, safety, and efficacy
of previously marketed products. In some cases, studies have resulted, and may in the future result, in the discontinuance of
product marketing or other risk management programs such as the need for a patient registry.
We
may experience pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which
would reduce our revenue and future profitability.
We
may experience downward pricing pressure on the price of our products due to social or political pressure to lower the cost of
drugs, which would reduce our revenue and future profitability. Recent events have resulted in increased public and governmental
scrutiny of the cost of drugs, especially in connection with price increases following companies’ acquisition of the rights
to certain drug products. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information
about drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating
to drug-price increases and pricing practices. Our revenue and future profitability could be negatively affected if these inquiries
were to result in legislative or regulatory proposals that limit our ability to increase the prices of our products.
In
addition, in September 2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to
justify price increases of more than 10% in a 12-month period, and a large number of individual States have introduced legislation
aimed at drug pricing regulation, transparency or both. While this proposed legislation has not been enacted into law to date,
our revenue and future profitability could be negatively affected by the passage of this law or similar federal or state legislation.
Furthermore, pressure from social activist groups and future government regulations may also put downward pressure on the price
of drugs, which could result in downward pressure on the prices of our products in the future.
New
tariffs and evolving trade policy between the United States and other countries, including China and Mexico, may have an adverse
effect on our sourcing of critical raw materials from suppliers located outside of the United States and corresponding adverse
effects on our business and results of operations.
Some
of our suppliers, including those of critical active pharmaceutical ingredients are located outside of the United States. There
is currently significant uncertainty about the future relationship between the U.S. and various other countries, including China
and Mexico, with respect to trade policies, treaties, government regulations and tariffs. The Trump Administration has called
for substantial changes to U.S. foreign trade policy, including the possibility of imposing greater restrictions on international
trade and significant increases in tariffs on goods imported into the U.S. In September 2018, the U.S. Trade Representative (USTR)
enacted a tariff on the import of certain Chinese products with a combined import value of approximately $200 billion, including
non-U.S. sourced APIs and starting materials used in our products. The tariff became effective on September 24, 2018, with an
initial rate of 10%, and the Trump Administration has expressed a willingness to potentially increase tariffs to 25%. These tariffs
could potentially disrupt our existing supply chains and impose additional costs on our business, including, without limitation,
costs with respect to raw materials upon which our business depends. Furthermore, if tariffs, trade restrictions or trade barriers
are placed on products such as ours by foreign governments, especially China, it could cause us to raise prices for our products,
which may result in the loss of customers with a corresponding detrimental impact on our business, financial condition, results
of operations, cash flow and ability to operate. If we are unable to pass along increased costs to our customers, our margins
could be adversely affected, with a corresponding detrimental impact on our business, financial condition, results of operations,
cash flow and ability to operate. Additionally, it is possible further tariffs may be imposed that could affect imports of active
pharmaceutical ingredients and excipients used in our products, or our business may be adversely impacted by retaliatory trade
measures taken by China or other countries, including restricted access to such raw materials used in our products, causing us
to raise prices or make changes to our products, which could require significant resources and time for regulatory compliance.
This would have a corresponding detrimental impact on our business, financial condition, results of operations, cash flow and
ability to operate. Furthermore, the continued threats of tariffs, trade restrictions and trade barriers could have a generally
disruptive impact on the global economy and, therefore, negatively impact our sales profit margins, profit splits, raw material
costs and ability to source raw materials. Given the unpredictable regulatory environment in China and the U.S. and uncertainty
regarding how the U.S. or foreign governments will act with respect to tariffs, international trade agreements and policies, further
governmental action related to tariffs, additional taxes, regulatory changes or other retaliatory trade measures in the future
could occur with a corresponding detrimental impact on our business, financial condition, results of operations, cash flow and
ability to operate.
We
are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials can materially
adversely affect our ability to produce products.
The
FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable
from a specified supplier, FDA approval of a new supplier could delay the manufacture of the drug involved.
In
addition, some materials used in our products are currently available from only one supplier or a limited number of suppliers
and there is a risk of a sole approved supplier significantly raising prices. Please note that such an occurrence has taken place
recently, wherein significant price increases from a sole supplier greatly reduced profit margins, sales, and delayed product
launches. These occurrences were ultimately resolved by the successful FDA approval of an alternate supplier, with such approval
process being lengthy and costly.
Further,
a significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special
risks of doing business abroad, including, without limitation:
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greater
possibility for disruption due to transportation or communication problems;
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the
relative instability of some foreign governments and economies;
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interim
price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds,
or fluctuations in currency exchange rates; and,
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uncertainty
regarding recourse to a dependable legal system for the enforcement of contracts and other rights.
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In
addition, patent laws in certain foreign jurisdictions (primarily, but not necessarily, in Europe) may make it increasingly difficult
to obtain raw materials for research and development prior to expiration of applicable United States or foreign patents. Any delay
or inability to obtain raw materials on a timely basis, or any significant price increases that cannot be passed on to customers,
can materially adversely affect our ability to produce products. This can materially adversely affect our business and operations.
Even
after regulatory approval, we will be subject to ongoing significant regulatory obligations and oversight as evidenced by the
FDA’s removal from the market of our Lodrane® extended release product line in 2011.
Even
if regulatory approval is obtained for a particular product candidate, the FDA and foreign regulatory authorities may, nevertheless,
impose significant restrictions on the indicated uses or marketing of such products, or impose ongoing requirements for post-approval
studies. Following any regulatory approval of our product candidates, we will be subject to continuing regulatory obligations,
such as safety reporting requirements, and additional post-marketing obligations, including regulatory oversight of the promotion
and marketing of our products. If we become aware of previously unknown problems with any of our product candidates here or overseas
or at our contract manufacturers’ facilities, a regulatory agency may impose restrictions on our products, our contract
manufacturers or on us, including requiring us to reformulate our products, conduct additional clinical trials, make changes in
the labeling 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.
We
depend on qualified scientific and technical employees and are increasingly dependent on our direct sales force, if key personnel
were to leave us or if we are unsuccessful in attracting qualified personnel, our ability to develop products and grow our business
could be materially harmed.
Because
of the specialized scientific nature of our business, we are highly dependent upon our ability to continue to attract and retain
qualified scientific and technical personnel. We are not aware of any pending, significant losses of scientific or technical personnel.
Loss of the services of, or failure to recruit, key scientific and technical personnel, however, would be significantly detrimental
to our product-development programs. As a result of our small size and limited financial and other resources, it may be difficult
for us to attract and retain qualified officers and qualified scientific and technical personnel.
In
addition, marketing of our branded product, SequestOx™ will require much greater use of a direct sales force compared to
marketing of our generic products. Our ability to realize significant revenues from marketing and sales activities depends on
our ability or the ability of our partners to attract and retain qualified sales personnel. Competition for qualified sales personnel
is intense. Any failure to attract or retain qualified sales personnel could negatively impact our sales revenue and have a material
adverse effect on our business, results of operations and financial condition.
We
have entered into employment agreements with our executive officers and certain other key employees. We do not maintain “
Key
Man
” life insurance on any executives.
If
we were sued on a product liability claim, an award could exceed our insurance coverage and cost us significantly.
The
design, development and manufacture of our products involve an inherent risk of product liability claims. We have procured product
liability insurance; however, a successful claim against us in excess of the policy limits could be very expensive to us, damaging
our financial position. The amount of our insurance coverage, which has been limited due to our limited financial resources, may
be materially below the coverage maintained by many of the other companies engaged in similar activities. To the best of our knowledge,
no product liability claim has been made against us as of the date hereof.
Our
pipeline of products under development include products that would be filed as branded pharmaceuticals and if generic manufacturers
use litigation and regulatory means to obtain approval for generic versions of one or more of such branded drugs, our sales may
be adversely affected.
Under
the Hatch-Waxman Act, the FDA can approve an ANDA for a generic bioequivalent version of a previously approved drug, without undertaking
the full clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant
usually needs only to submit data demonstrating that its generic product is bioequivalent to the branded product.
Our
product development pipeline includes a range of abuse resistant opioid products, with full clinical testing activity being currently
planned, in progress or successfully completed. In recent years, various generic manufacturers have filed ANDAs seeking FDA approval
for generic versions of opioids and opioids with abuse resistant characteristics. In connection with our filings, these manufacturers
may challenge the validity and/or enforceability of one or more of the underlying patents protecting our products. While it is
the Company’s intention to vigorously defend and pursue all available legal and regulatory avenues in defense of the intellectual
property rights protecting our products, it must also be stressed that litigation is inherently uncertain, and we cannot predict
the timing or outcome of our efforts. There can also be no assurance that our efforts in defense of the intellectual property
rights protecting our products will be successful.
If
we are not successful in defending our intellectual property rights, or opt to settle, or if a product’s marketing exclusivity
rights expire or become otherwise unenforceable, our competitors could ultimately launch generic versions of one or more of our
branded products, after such products have been approved by the FDA, which could significantly decrease our revenues and could
have a material adverse effect on our business, financial conditions, results of operations and cash flow. Furthermore, such a
material adverse effect may result in a material adverse effect on our share price.
Agreements
between branded pharmaceutical companies and generic pharmaceutical companies are facing increased government scrutiny in the
United States and Internationally.
There
are numerous and continuing litigation in which generic companies challenge the validity or enforceability of an innovator products
patents and/or the applicability of such patents to a generic applicant’s products. Settlement of such litigation is a common
outcome, with review of such agreements by the U.S. Federal Trade Commission (the “
FTC
”) and the Antitrust
Division of the Department of Justice (the “
DOJ
”) being required by law. The FTC has stated publicly its view
that some of these settlement agreements violate antitrust laws and has commenced actions against the branded and generic companies
that are parties to these agreements. Accordingly, in the event of the Company being party to a settlement agreement, either as
the branded, innovator product owner, or as the generic applicant, we may receive formal or informal requests from the FTC for
information about a settlement agreement and there is a risk of the FTC alleging a violation of antitrust laws and commencing
an action against us.
In
addition, the United States Congress has proposed legislation that would limit the types of settlement agreements generic manufacturers
can enter into with brand companies. In 2013, the Supreme Court, in
FTC v. Actavis
, determined that reverse payment patent
settlements between generic and brand companies should be evaluated under the rule of reason, and provided limited guidance beyond
the selection of this standard. Due to the court’s non-articulation of a precise rule of lawfulness for such settlements,
there may be extensive litigation over what constitutes a reasonable and lawful patent settlement between and brand and generic
company.
The
impact of such future litigation, if any, legislative proposals, and potential future court decisions is uncertain, and there
can be no assurances that such impact will not have an adverse effect on the Company’s business, its financial condition,
results of operations, cash flows and its stock price.
We
may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label”
use of drugs.
In
jurisdictions including, without limitation, the United States, a company is not permitted to promote drugs for uses that are
not described in the product’s labeling 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
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, 2019, intangible assets were approximately $6.6 million,
or approximately 27% of our assets.
Generally
accepted accounting principles in the United States (“
GAAP
”) requires that intangible assets be subject to
regular impairment analysis to determine if changes in circumstances indicate that the value of the asset as recorded may not
be recoverable. Such events or changes in circumstances are an inherent risk in the pharmaceutical industry and often cannot be
predicted. However, should a change in circumstance occur, requiring the impairment of an intangible asset, the result of such
an impairment may have an adverse material effect on our business, financial condition, results of operations, cash flows and
stock price.
Our
products contain narcotic ingredients. As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs
may be subject to increased litigation risk and new regulation, including the development of Risk Evaluation and Mitigation Strategy
(“
REMS
”), which may prove difficult or expensive to comply with.
Many
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 labeling 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 labeling changes necessary to address
safety risks. Congress also empowered the FDA to require companies to formulate REMS to confirm a drug’s benefits exceed
its risks. In 2011, the FDA issued letters to manufacturers of long-acting and extended-release opioids requiring them to develop
and submit to the FDA a post-market REMS plan to require that training is provided to prescribers of these products and that information
is provided to prescribers that they can use in counseling 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 the abuse of opioid medications, including increased legal and regulatory action, could negatively affect our business
.
Included
in our commercial products and development pipeline are medications containing 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 two opioid products approved during the twelve months ended March 31, 2019 and a cessation of orders
for another opioid that had been marketed by one or our marketing partners. Further, defense against any such opioid related lawsuits
could be prohibitive with regards to cost resulting in an adverse material effect on our business, financial condition, results
of operations, cash flows and stock price. Similar allegations made against us, even without litigation, could also negatively
affect our business in various ways, including through increased costs and harm to our reputation. In addition, an adverse resolution
of any lawsuit or investigation could also have a material adverse effect on our business, results of operations, cash flows and
stock price.
Our
business and financial condition may be adversely affected by legislation or regulatory reform of the healthcare system in the
United States.
In April 2018, New
York enacted a statute called the Opioid Stewardship Act (the Stewardship Act), which, among other things, provided for certain
sellers and distributors of certain opioids in the state of New York (the Contributing Parties) to make payments to a newly created
Opioid Stewardship Fund (the Fund). By its terms, the Stewardship Act required Contributing Parties to pay a total of up to $100
million annually into the Fund, with each Contributing Party’s share based on the total amount of morphine milligram equivalents
of certain opioids sold or distributed by the Contributing Party in the state of New York during the preceding calendar year,
subject to potential adjustments by the New York State Department of Health. Failure of a Contributing Party to make required
reports or pay its ratable share, or a Contributing Party passing on the cost of its ratable share to a purchaser, could subject
the Contributing Party to penalties. In December 2018, the U.S. District Court for the Southern District of New York held the
Stewardship Act unconstitutional. This ruling is on appeal. If the decision is reversed, we may be deemed to be a Contributing
Party under the Stewardship Act and even if we are not considered to be a Contributing Party, or such a determination is never
made, other entities may attempt to seek reimbursement from Endo for payments made related to products manufactured by Endo and
distributed in New York. Furthermore, the application of the Stewardship Act may require additional regulatory guidance, which
could be substantially delayed, increasing the uncertainty as to the ultimate effect of the Stewardship Act on us. If we are ultimately
deemed to be a Contributing Party under the Stewardship Act, or similar legislation that could be enacted by New York or other
jurisdictions, compliance with those laws could have an adverse effect on our business, results of operations, financial condition
and cash flows. Additionally, in October 2018, the U.S. Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid
Recovery and Treatment for Patients and Communities Act (H.R. 6). Intended to achieve sweeping reform to combat the opioid epidemic,
H.R. 6, among other provisions, amends related laws administered by the FDA, DEA and CMS. Among other things, the law: amends
requirements related to the FDA’s authority to include packaging requirements in REMS requirements; increases civil and
criminal penalties for drug manufacturers and distributors for failing to maintain effective controls against diversion of opioids
or for failing to report suspicious opioid orders; requires the DEA to estimate the amount of opioid diversion when establishing
manufacturing and procurement quotas; implements expanded anti-kickback and financial disclosure provisions; and authorizes the
Department of Health and Human Services to implement a demonstration program which would award grants to hospitals and emergency
departments to develop, implement, enhance or study alternative pain management protocols and treatments that limit the use and
prescription of opioids in emergency departments. While the effect of this legislation is still uncertain, it is likely that our
products will be affected by enforcement of the legislation, including through related policies and implementing regulations.
There can be no assurances that the effects of this legislation will not be determinant to our business, results of operations,
financial condition, cash flow or ability to operate.
Furthermore,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively commonly
referred to as the “Affordable Care Act” may affect the operational results of companies in the pharmaceutical industry
such as ours by imposing additional costs. Effective January 1, 2010, the Affordable Care Act, amongst other changes, increased
the minimum Medicaid drug rebates for pharmaceutical companies and revised the definition of “average manufacturer price”
for reporting purposes, which may affect the amount of Medicaid drug rebates to states related to the sales of our products, whether
such sales are made directly by Company or by one of the Company’s licensees. Beginning in 2011, the law also imposed a
significant annual fee on companies that manufacture or import branded prescription drug products.
The
Affordable Care Act contemplates the promulgation of significant future regulatory action which may also further affect our business.
In addition, since its enactment, the legislative and executive branches of the federal government have proposed multiple revisions
to the Affordable Care Act, the effect of which, if implemented, may result in changes to the health care laws or regulatory framework
that could result in the reduction of revenues or increased costs which could also have a material adverse effect on our business,
results of operations and financial condition.
Please
also see the above risk factor titled “The availability of third party reimbursement for our products is uncertain, and
thus we may find it difficult to maintain current price levels. Additionally, the market may not accept those products for which
third party reimbursement is not adequately provided”.
Legislative
or regulatory programs that may influence prices of prescription drugs or decrease the degree to which individuals are covered
by healthcare insurance could have a material adverse effect on our business.
Current
or future federal or state laws and regulations may influence the prices of drugs and, therefore, could adversely affect the prices
that we receive for our products. Programs in existence in certain states seek to set prices of all drugs sold within those states
through the regulation and administration of the sale of prescription drugs. Expansion of these programs, in particular, state
Medicaid programs, or changes required in the way in which Medicaid rebates are calculated under such programs, could adversely
affect the price we receive for our products and could have a material adverse effect on our business, results of operations and
financial condition. Further, prescription drug prices have been the focus of increased scrutiny by the government, including
certain state attorneys general, members of congress and the U.S. Department of Justice. Decreases in health care reimbursements
or prices of our prescription drugs could limit our ability to sell our products or decrease our revenues, which could have a
material adverse effect on our business, results of operations and financial condition.
Furthermore, employers
may seek to reduce costs by reducing or eliminating employer group healthcare plans or transferring a greater portion of healthcare
costs to their employees. Job losses or other economic hardships may also result in reduced levels of coverage for some individuals,
potentially resulting in lower levels of healthcare coverage for themselves or their families. Further, in addition to the fact
that the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the Patient Protection and Affordable Care Act (“PPCA”)
requirement that individuals maintain insurance or face a penalty, additional steps by the Trump Administration or other parties
to limit or end cost-sharing subsidies to lower income Americans may increase instability in the insurance marketplace and the
number of uninsured Americans. These economic conditions may affect patients’ ability to afford healthcare as a result of
increased co-pay or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations and lost healthcare
insurance coverage or for other reasons. We believe such conditions could lead to changes in patient behavior and spending patterns
that negatively affect usage of certain of our products, including some patients delaying treatment, rationing prescription medications,
leaving prescriptions unfilled, reducing the frequency of visits to healthcare facilities, utilizing alternative therapies or
foregoing healthcare insurance coverage. Such changes may result in reduced demand for our products, with no assurances given
that such would result in an impact which is not detrimental to our business, results of operations, financial condition, cash
flows or ability to operate.
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 are no longer
permissible under the U.S. Congress’ taxing power, the entire PPACA is no longer constitutional. While this decision is
appealable to the U.S. Court of Appeals, changes in law resulting from this ongoing lawsuit or other court challenges to the PPACA
could materially and adversely affect the sales of our products, our business, results of operations, financial position, cash
flows and ability to operate.
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.
The
growth of Elite will depend on developing, commercializing and marketing new products.
Our
future revenues and profitability is significantly dependent on our ability to successfully commercialize new branded and generic
pharmaceutical products in a timely manner. Accordingly, we must continually develop, test, file, receive marketing authorization
and manufacture new products. While we are currently developing products and have plans in place for future products beyond those
currently in development, there can be no assurances that any of these products will receive marketing authorization and achieve
commercialization. In addition, even if a product receives marketing authorization, 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 the marketing authorization and create/support the infrastructure required for the
commercial manufacture of such product.
We
are engaged in the research and development of pharmaceutical products with the objective of achieving marketing authorizations
that enable us to manufacture and sell pharmaceuticals in accordance with specific government regulations. Due to the inherent
risk associated with pharmaceutical product research and development, particularly with respect to new/innovative drugs, our research
and development expenditures and efforts may not result in a successful regulatory approval and commercialization of new products.
Furthermore, after we submit a regulatory application, the relevant government authority may require that we conduct additional
studies, resulting in an inability for us to reasonably predict the total research and development costs for a new product.
Circumstances
in which the Company is unable to successfully commercialize new products in a timely manner, or circumstances in which the profitability
of a new product is not sufficient with respect to the costs and investments required to develop such product may have a material
adverse effect on our business, financial condition, results of operations, cash flows and stock price.
If
our manufacturing facilities are unable to manufacture our products or the manufacturing process is interrupted due to failure
to comply with regulations or for other reasons, it could have a material adverse impact on our business.
If
any of our manufacturing facilities, quality and regulatory operations and other business and commercial functions fail to comply
with complex and numerous regulatory requirements or encounter other manufacturing difficulties, it could adversely affect our
ability to supply products. All facilities and manufacturing processes used for the manufacture of pharmaceutical products must
be operated in conformity with 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, record-keeping and quality assurance and control so that their products meet applicable specifications and other requirements
product safety, efficacy, and quality. Failure to comply with applicable legal requirements subjects our manufacturing facilities
to possible legal or regulatory action, including, without limitation, shutdown, which may adversely affect our ability to manufacture
product. Were we not able to manufacture products at our manufacturing facilities because of regulatory, business or any other
reason, the manufacture and marketing of these products would be interrupted. This could have a material adverse impact on our
business, results of operations, financial condition, cash flows, competitive position, and stock price.
Sales
of our products may be adversely affected by the continuing consolidation within the retail and wholesale pharmaceutical markets.
Our
products, whether sold directly by the Company or through third parties that are licensed to market and distribute our products
are sold in large part to a market that is comprised of a relatively few retail drug chains, wholesalers, and managed care organizations,
with such entities continuing to undergo consolidation. Such consolidation may provide these customers or our products with additional
purchasing leverage, and consequently, may increase the pricing pressures faced by us. Additionally, the emergence of large buying
groups representing independent retail pharmacies, and the prevalence and influence of managed care organizations and similar
institutions, enable those groups to extract price discounts on our products.
In
addition, our revenues and quarterly results comparisons may also be affected by fluctuations in the buying patterns of retail
chains, major distributors, and other trade buyers.
Any
delays or unanticipated expenses in connection with the operation of our limited number of facilities could have a material adverse
effect on our business.
All
of our manufacturing operations are conducted at the Northvale Facility. A significant disruption at this facility, even on a
short-term basis, whether due to, without limitation, an adverse quality or compliance observation, including a total or partial
suspension of production and/or distribution by regulatory authorities, an act of God, civil or political unrest, force majeure
situation or other events could impair our ability to produce and ship products on a timely basis, and could, among other consequences,
subject us to exposure to claims from customers. Any of these events could have a material adverse effect on our business, results
of operations, financial condition, and cash flows.
Our
business is dependent on market perceptions of us and the safety and efficacy or our products. Negative publicity relating to
us or our products could have a material adverse effect on our business, results of operations, financial condition, and cash
flows.
Market
perceptions or our business are important to us, especially market perceptions of the safety and quality of our products. If any
of our products or similar products that other companies distribute are subject to market withdrawal, recall, or are proven to
be, or are claimed to be, harmful to consumers, then this could have a material adverse effect on our business, results of operations,
financial condition, and cash flows. Furthermore, due to the importance of market perceptions, negative publicity associated with
product quality, illness or other adverse effects resulting from, or perceived to be resulting from, our products, or similar
products made by other companies, could have a material adverse effect on our business, results of operations, financial condition,
and cash flows.
We
may discontinue the manufacture and distribution of certain existing products, which may adversely affect our business, results
of operations, financial condition, and cash flows.
As
part of regular evaluations of product performance, we may determine that it is in our best interest to discontinue the manufacture
and distribution of certain of our products. We cannot guarantee that we have correctly forecasted, or will correctly forecast
in the future, the appropriate products to discontinue or that a decision to discontinue various products is prudent if market
conditions change. In addition, there can be no assurances that the discontinuance of products will reduce operating expense or
no cause the incurrence of material charges associated with such a decision. Furthermore, the discontinuance of existing products,
entails various risks, including, without limitation, the ability to find a purchaser for such products, if there is a decision
to sell the product, as well as the risk that the purchase price obtained will not be equal to at least the book value of the
net assets relating to such products. Other risks associated with a product discontinuance, include, without limitation, managing
the expectations of and maintaining good relations with our customers who previously purchased a discontinued product from us,
and the effects such would have on future sales to these customers. We may also incur significant liabilities and costs associated
with our product discontinuance. All of the foregoing could have a material adverse effect on our business, results of operations,
financial condition, and cash flows.
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.
Research
and development efforts invested in our branded pharmaceutical products may not achieve expected results.
The
development of branded products requires significant resources from the Company, as well as the potential for resources being
acquired through collaborations, in-licensing, or third-party product acquisitions. The development of proprietary branded drugs
involves processes and expertise that is different from that required by the development of generic products, resulting in an
increased risk profile for branded development. For example, the time frame from discovery to commercial launch of a branded product
can be more than 10 years, involving multiple stages which may consist of intensive preclinical and clinical testing and a highly
complex, lengthy, and expensive approval process. The longer time frames and increased costs adds increasing risk of achieving
product approvals, and if approved, our ability to recover development costs and generate profits.
During
each development stage, we may encounter obstacles that delay the process or approval and increase expenses, leading to significant
risks that we will not achieve our goals and may be forced to abandon a potential product in which we have invested substantial
amounts of time and money. These obstacles may include: preclinical failures; difficulty enrolling patients in clinical trials;
delays in completing formulation and other work needed to support an application for approval; adverse reactions or other safety
concerns arising during clinical testing; insufficient clinical trial data to support the safety or efficacy of the product candidate;
and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in
which it is manufactured. As a result of the obstacles noted above, our investment in research and development of branded products
can involve significant costs with no assurances of future revenues or profits.
Approvals
for our new generic drug products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval
requirements.
The
FDA may institute changes to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval
for our new generic products. For instance, in July 2012, the Generic Drug Fee User Amendments of 2012 (“
GDUFA
”)
was enacted into law. The GDUFA legislation implemented fees for new ANDAs, Drug Master Files, product and establishment fees
and a one-time fee for back-logged ANDAs pending approval as of October 1, 2012. In return, the program is intended to provide
faster and more predictable ANDA reviews by the FDA and increased inspections of drug facilities. Under GDUFA, generic product
companies face significant penalties for failure to pay the new user fees, including rendering an ANDA not “substantially
complete” until the fee is paid. Any failure by us or our suppliers to pay the fees or to comply with the other provisions
of GDFUA may impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus
may have a material adverse effect on our business, results of operations and financial condition.
In
addition to the implementation of new fees and review procedures by the FDA, the FDA may also implement other changes that may
directly affect some of our ANDA filings pending approval from the FDA, such as changes to guidance from the FDA regarding bioequivalency
requirements for particular drugs. Such changes may cause our development of such generic drugs to be significantly more difficult
or result in delays in FDA approval or result in our decision to abandon or terminate certain projects. Any changes in FDA requirements
may make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus have a material
adverse effect on our business, results of operations and financial condition.
The
risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization of
our own branded products, which could have a material adverse effect on our business, results of operations and financial condition.
With
respect to our branded products which do not qualify for the FDA’s abbreviated application procedures, we must demonstrate
through clinical trials that these products are safe and effective for use. We have only limited experience in conducting and
supervising clinical trials. The process of completing clinical trials and preparing an NDA may take several years and requires
substantial resources. Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA
grants approval, we cannot predict the timing of any approval. There are substantial filing fees for NDAs, often in excess of
$1 million in addition to the cost of product development and clinical trials, that are not refundable if FDA approval is not
obtained.
There
are a number of risks and uncertainties associated with clinical trials. The results of clinical trials may not be indicative
of results that would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced
stages of disease and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for
reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results.
In addition, side effects experienced by the patients may cause delay of approval or limit the profile of an approved product.
Moreover, our clinical trials may not demonstrate sufficient safety and efficacy to obtain approval from the FDA or foreign regulatory
authorities. The FDA or foreign regulatory authorities may not agree with our assessment of the clinical data or they may interpret
it differently. Such regulatory authorities may require additional or expanded clinical trials. Even if the FDA or foreign regulatory
authorities approve certain products developed by us, there is no assurance that such regulatory authorities will not subject
marketing of such products to certain limits on indicated use.
Failure
can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive
of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the
desired safety or efficacy despite having progressed successfully through earlier clinical testing.
Completion
of clinical trials for our product candidates may be delayed or halted for the reasons noted above in addition to many other reasons,
including, without limitation:
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Delays
in patient enrollment, and variability in the number and types of patients available for clinical trials;
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Regulators
or institutional review boards may not allow us to commence or continue a clinical trial;
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Our
inability, or the inability of our partners, if any, to manufacture or obtain from third parties those materials required
to complete clinical trials;
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Delays
or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical
trial sites;
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Risks
associated with trial design, which may result in a failure of the trial to show statistically significant results even if
the product candidate is effective;
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Difficulty
in maintaining contact with patients after treatment commences, resulting in incomplete data
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Poor
effectiveness of product candidates during clinical trials;
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Safety
issues, including adverse events associated with product candidates;
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Failure
of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other
reasons;
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Governmental
or regulatory delays or changes in regulatory requirements, policy, and guidelines; and,
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Varying
interpretation of data by the FDA or other relevant regulatory authorities.
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In
addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under
development which may delay the enrollment in or initiation of our clinical trials.
The
FDA or other relevant regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result
in additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials
for our product candidates would prevent or delay the commercialization of our product candidates. We cannot assure that our expenses
related to clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays
or failure in the development and commercialization of our own branded products could have a material adverse effect on our business,
results of operations and financial condition.
We
rely on third parties to conduct clinical trials and testing for our product candidates, and if they do not properly and successfully
perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory
approvals for our product candidates.
We
design the clinical trials for our product candidates but rely on contract research organizations and other third parties to assist
us in managing, monitoring and otherwise carrying out these trials, including, without limitation, with respect to site selection,
contract negotiation, analytical testing, and data management. We do not control these third parties and, as a result, delays
may occur as a result of the priorities and operations of these third parties differing from those which we may feel would be
most optimal to the completion of such activities in the most efficient manner possible.
Although
we rely on third parties to conduct our clinical trials and related activities, we are responsible for confirming that each of
our clinical trials is conducted in accordance with our general investigational plan and protocol. Moreover, the FDA and other
relevant regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices
and good laboratory practices, for conducting, recording, and reporting the results of clinical trials to ensure that the data
and results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties
does not relieve us of these responsibilities and requirements. The FDA enforces good clinical practices and good laboratory practices
through periodic inspections of trial sponsors, principal investigators, and trial sites. If we, our contract research organizations,
or our study sites fail to comply with applicable good clinical practices and good laboratory practices, the clinical data generated
in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials
comply with good clinical practices and good laboratory practices. In addition, our clinical trials must be conducted with product
manufactured under the FDA’s current Good Manufacturing Practices, or cGMP, regulations. Our failure or the failure of our
contract manufacturers if any are involved in the process, to comply with these regulations may require us to repeat clinical
trials, which would delay the regulatory approval process.
If
third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data
they obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements, or if they otherwise
fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements.
If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials
may be extended, delayed, suspended, or terminated. If any of these events occur, we may not be able to obtain regulatory approval
of our product candidates, which could have a material adverse effect on our business, results of operations and financial condition.
The
illegal distribution and sale by third parties of counterfeit versions of our products or of stolen products could have a negative
impact on our reputation and a material adverse effect on our business, results of operations and financial condition.
Third
parties could illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing
and testing standards that our products undergo. Counterfeit products are frequently unsafe or ineffective and can be life-threatening.
Counterfeit medicines may contain harmful substances, the wrong dose of the active pharmaceutical ingredient or no active pharmaceutical
ingredients at all. However, to distributors and users, counterfeit products may be visually indistinguishable from the authentic
version.
Reports
of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in
the authentic product. It is possible that adverse events caused by unsafe counterfeit products will mistakenly be attributed
to the authentic product. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored,
and which are sold through unauthorized channels could adversely impact patient safety, our reputation, and our business.
Public
loss of confidence in the integrity of pharmaceutical products as a result of counterfeiting or theft could have a material adverse
effect on our business, results of operations and financial condition.
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.
Unstable
economic conditions may adversely affect our industry, business, results of operations and financial condition.
The
global economy has undergone a period of significant volatility 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 fulfill 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.
We
received a Complete Response Letter from the FDA that indicated that our SequestOx™ NDA is not ready for approval in its
present form. While we plan on proceeding with our application for SequestOx™, we cannot assure if or whether our efforts
will be successful. 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.
We
previously received a Warning Letter from the FDA regarding Postmarketing Adverse Drug Experience reporting. The Warning Letter
did not restrict the production, sale, marketing or shipment of any of our products, however, until the we were able to correct
the issues, the FDA withheld approval of pending drug applications. While we subsequently satisfied the FDA’s concerns,
no assurance can be given that future similar issues will not arise.
On
August 26, 2016, Elite received a Warning Letter from the FDA regarding Postmarketing Adverse Drug Experience (PADE) reporting.
The Warning Letter related to certain observations that the FDA believed were inadequately addressed by the Company’s response
to a Form 483 issued by the FDA from a recent inspection at its facility. The Warning Letter cited that Elite’s Standard
Operating Procedures (SOPs) did not adequately address how to monitor and receive adverse drug experiences (ADEs). While Elite
has a contract with an external service provider for follow-up to ADEs, Elite remains responsible for ensuring the ADEs are appropriately
investigated and that follow-up information is submitted in a timely manner to the FDA. The FDA believed that Elite did not have
adequate SOPS for ADEs, and failed to investigate, evaluate, and timely report ADEs. Elite successfully addressed the deficiencies
cited in the letter and, on December 15, 2017, the FDA issued a closeout letter, removing any restrictions placed on us by the
warning letter.
Despite
the successful resolution of the warning letter previously received, there can be no assurances that Elite will not receive warning
letters in the future, and furthermore there can be no assurances of the successful resolution of such future warning letter(s),
if any. In addition to the approval of pending drug applications being delayed or denied as a result of the issuance of a warning
letter, the cost of resolving any issues cited in such warning letter could be material. In all cases, the issuance of warning
letter by the FDA could have a material detrimental effect on our business, results of operations, financial condition and stock
price.
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.
Impact
of New Tax Legislation
On
December 22, 2017, President Trump signed into law new tax legislation, the Tax Act, that significantly changes the Internal Revenue
Code of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction
of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest
expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses
to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings
at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions
for depreciation expense over time, and modifying or repealing many business deductions and credits. Any federal net operating
loss carryovers created in 2018 and thereafter will be carried forward indefinitely pursuant to the Tax Act. We continue to examine
the impact this tax legislation may have on our business.
The
risks described herein are not the only risks we face. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
Natural
disasters or other unexpected events may disrupt our operations, adversely affect our results of operations and financial condition,
and may not be covered by insurance.
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.
Risk
Related to Our Common Stock
Our
stock price has been volatile and may fluctuate in the future.
The
market price for the publicly traded stock of pharmaceutical companies is generally characterized by high volatility. There has
been significant volatility in the market prices for our Common Stock. For the twelve months ended March 31, 2019, the closing
sale price on the OTC Bulletin Board (“
OTC-BB
”) of our Common Stock fluctuated from a high of $0.1167 per share
to a low of $0.0735 per share. The price per share of our Common Stock may not exceed or even remain at current levels in the
future. The market price of our Common Stock may be affected by a number of factors, including, without limitation:
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Results
of our clinical trials;
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Approval
or disapproval of our ANDAs or NDAs;
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Announcements
of innovations, new products, or new patents by us or by our competitors;
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Announcements
of other material events;
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Governmental
regulation;
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Patent
or proprietary rights developments;
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Proxy
contests or litigation;
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News
regarding the efficacy of, safety of or demand for drugs or drug technologies;
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Economic
and market conditions, generally and related to the pharmaceutical industry;
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Healthcare
legislation;
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Changes
in third-party reimbursement policies for drugs; and
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Fluctuations
in our operating results.
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The
sale or issuance of our common stock to Lincoln Park or upon conversion of outstanding preferred stock or exercise of outstanding
warrants and options may cause dilution and the sale of the shares of common stock acquired by Lincoln Park or the issuance of
shares upon conversion or exercise of outstanding preferred stock and warrants, or the perception that such sales and issuances
may occur, could cause the price of our common stock to fall.
On
May 1, 2017, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase
up to $40,000,000 of our common stock. Concurrently with the execution of the Purchase Agreement, we issued 5,540,550 shares of
our common stock to Lincoln Park as an initial fee for its commitment to purchase shares of our common stock under the Purchase
Agreement. Furthermore, for each additional purchase by Lincoln Park, additional commitment shares in commensurate amounts up
to a total of 5,540,550 shares will be issued based upon the relative proportion of the aggregate amount of $40,000,000 purchased
by Lincoln Park. The purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at
our discretion from time to time over a 36-month period commencing after June 5, 2017. 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, 2019, there were outstanding shares of preferred stock convertible into approximately 158 million shares
of Common Stock and warrants to purchase an aggregate of approximately 79 million shares of Common Stock at an exercise price
of $0.1521 per share, vested options to purchase an aggregate of approximately 5.6 million shares at a weighted average exercise
price of $0.14. Additional shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding preferred
stock and warrants.
As
a result of the above discussed potential issuance of securities, such issuances by us could result in substantial dilution to
the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock
to Lincoln Park or pursuant to the conversion or exercise of outstanding shares of preferred stock and warrants, or the anticipation
of such issuances, could make it more difficult for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales.
The
issuance of our common stock to Directors, Employees, and Consultants in payment of fees and salaries cause dilution and the sale
of these shares of common stock so issued, or the perception that sales of these shares so issued may occur, could cause the price
of our common stock to fall.
Pursuant
to the Company’s policies relating to the compensation of Directors, 2/3 of all director fees are paid via the issuance
of shares of Common Stock, with such shares being valued at the simple average of the closing price of the Company’s Common
Stock for each day in the period for which the director fees were incurred. In addition, members of the Company’s management,
certain employees and consultants receive a portion of their salaries or compensation via the issuance of shares Common Stock,
with such shares being valued by the same method as that used for the shares issued in payment of director fees.
The
issuance of these shares is dilutive to holders of our Common Stock, and the subsequent sale of these shares, or the perception
that the sale of these shares may occur, could cause the price of our common stock to fall.
Raising
of additional funding through sales of our securities could cause existing holders of our Common Stock to experience substantial
dilution.
Any
additional financing that involves the further sale of our securities could cause existing holders of our Common Stock to experience
substantial dilution. On the other hand, if we incurred debt, we would be subject to risks associated with indebtedness, including
the risk that interest rates might fluctuate, and cash flow would be insufficient to pay principal and interest on such indebtedness.
The
issuance of additional shares of our Common Stock or our preferred stock could make a change of control more difficult to achieve.
The
issuance of additional shares of our Common Stock, including those shares issued pursuant to conversion of convertible preferred
shares, or the issuance of shares of an additional series of preferred stock could be used to make a change of control of us more
difficult and expensive. Under certain circumstances, such shares could be used to create impediments to, or frustrate persons
seeking to cause, a takeover or to gain control of us. Such shares could be sold to purchasers who might side with our Board of
Directors in opposing a takeover bid that the Board of Directors determines not to be in the best interests of our shareholders.
It might also have the effect of discouraging an attempt by another person or entity through the acquisition of a substantial
number of shares of our Common Stock to acquire control of us with a view to consummating a merger, sale of all or part of our
assets, or a similar transaction, since the issuance of new shares could be used to dilute the stock ownership of such person
or entity.
Provisions
of our Articles of Incorporation and By-Laws could defer a change of our Management which could discourage, or delay offers to
acquire us.
Provisions
of our Articles of Incorporation and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders
to remove existing management and might discourage a third party from offering to acquire us, even if a change in control or in
Management would be beneficial to our shareholders. For example, as discussed above, our Articles of Incorporation allows us to
issue shares of preferred stock without any vote or further action by our shareholders. Our Board of Directors has the authority
to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to
issue preferred stock without further shareholder approval. As a result, our Board of Directors could authorize the issuance of
a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive
dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares,
together with a premium, prior to the redemption of our common stock. In this regard, on November 15, 2013, we entered into a
Shareholder Rights Plan and, under the Rights Plan, our Board of Directors declared a dividend distribution of one Right for each
outstanding share of our common stock and one right for each share of Common Stock into which any of our outstanding Preferred
Stock is convertible, to shareholders of record at the close of business on that date. Each Right entitles the registered holder
to purchase from us one “Unit” consisting of one one-millionth (1/1,000,000) of a share of Series H Junior Participating
preferred stock, at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15, 2023,
the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer,
the Rights Plan’s the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable
to him pursuant to his employment agreement and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors
into three classes.
There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in
accordance with GAAP. Any future changes in estimates, judgments and assumptions used or necessary revisions to prior estimates,
judgments or assumptions could lead to a restatement of our results.
The
consolidated financial statements included in this Annual Report on Form 10-K are prepared in accordance with GAAP. This involves
making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities,
mezzanine equity, stockholders’ equity, operating revenues, costs of sales, operating expenses, other income, and other
expenses. Estimates, judgments, and assumptions are inherently subject to change in the future and any necessary revisions to
prior estimates, judgments or assumptions could lead to a restatement. Any such changes could result in corresponding changes
to the amounts of assets (including goodwill and other intangible assets), liabilities, mezzanine equity, stockholders’
equity, operating revenues, costs of sales, operating expenses, other income and other expenses.
Our
Common Stock is considered a “penny stock”. The application of the “penny stock” rules to our Common Stock
could limit the trading and liquidity of our Common Stock, adversely affect the market price of our Common Stock, and increase
the transaction costs to sell shares of our Common Stock.
Our common stock is
a “low-priced” security or “penny stock” under rules promulgated under the Securities Exchange Act of
1934, as amended (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.
Our
Common Stock is quoted on the Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board is a quotation system, not
an issuer listing service, market, or exchange, therefore, buying and selling stock on the Over-the-Counter Bulletin Board is
not as efficient as buying and selling stock through an exchange. As a result, it may be difficult to sell our Common Stock for
an optimum trading price or at all.
The
Over-the-Counter Bulletin Board (the “OTCBB”) is a regulated quotation service that displays real-time quotes, last
sale prices and volume limitations in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual
process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes,
may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in
the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades,
execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able
to sell shares of our Common Stock at the optimum trading prices.
When
fewer shares of a security are being traded on the OTCBB, volatility of prices may increase, and price movement may outpace the
ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s
orders being executed, and current prices may differ significantly from the price one was quoted by the OTCBB at the time of the
order entry. Orders for OTCBB securities may be canceled 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.
The Series J Convertible Preferred
Stock includes a provision for the payment of an annual dividend equal to twenty percent of the stated value of outstanding shares,
beginning four years subsequent to the date of issuance of share of Series J Convertible Preferred if the Company is unable to
obtain shareholder approval of an increase in authorized shares of Common Stock. These dividends may require expenditure of Company
resources in the future, and they may make it difficult to sell our Common Stock for an optimum trading price or at all.
The Company issued
24.0344 shares of Series J Convertible Preferred Stock (“
Series J Preferred
”) in April 2017, with such shares
having an aggregate stated value of $23.0 million and are convertible, two years subsequent to their date of issue, into 158.0
million shares of Common Stock. The Company does not have sufficient unissued and unreserved shares in its currently authorized
share capital and would require shareholder approval to increase the number of authorized shares to an amount that is sufficient
to allow the issuance of Common Stock pursuant to a future conversion of Series J Preferred (the “
Shareholder Approval
”).
In the event that such an increase in authorized shares is not approved by the shareholders on or before four years of the issuance
of the Series J Preferred shares, holders of Series J Preferred shares are entitled to an annual dividend equal to twenty percent
of the stated value of Series J Preferred shares held, with such dividends accruing from the date that is four years subsequent
to the date of issuance of each share of Series J Preferred. This dividend is payable in cash, if such is legally available for
the payment of this dividend, or payable by the issuance of additional shares of Series J Preferred. Accordingly, in the event
that dividends become payable on Series J Preferred because the Company did not timely obtain Shareholder Approval, the Company
will be required to use its cash resources to pay these dividends, if such cash is legally available for the payment of dividends,
or will issue additional shares of Series J Preferred, which are convertible into additional shares of Common Stock, which in
turn would require shareholder approval of a further increase in authorized shares. Both potential scenarios could result in the
expenditure of Company resources, or a difficulty in the ability to sell our Common Stock for an optimum trading price or at all,
or both, in the event that dividends become due and owing on shares of Series J Preferred. Please see the risk factor “If
we are unable to increase our authorized shares of common stock, our ability to raise additional funds most likely will be materially
adversely affected. Our inability to increase our authorized shares also will result in a requirement to pay significant annual
dividends pursuant to our outstanding shares of Series J Preferred Stock”.
The requirements of the Sarbanes-Oxley
Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management
We are subject to
certain of the requirements of the Sarbanes-Oxley Act of 2002, as well as the reporting requirements under the Exchange Act. The
Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls
over financial reporting. In prior years, we have incurred significant costs and expended resources in creating, implementing
and maintaining such effective disclosure controls and procedures and internal controls. During the most current fiscal year reporting
period, however, we identified material weaknesses in internal controls. As a company with limited resources and staff, it is
challenging to maintain effective controls, especially in regards to achieving adequate segregation of duties. Control weaknesses,
such as those identified, can require significant financial and other resources to remediate and the existence of unremediated
control weaknesses raise the risk of future material errors in the Company’s financial statements. In addition, ongoing
weaknesses can subject the Company to SEC enforcement action, which might include monetary fines or other equitable remedies that
could have a material adverse effect on our business, operations, financial condition, results of operations and cash flows. Please
see Item 9A “
Controls And Procedures
” in Part II.
We
have no plans to pay regular dividends on our ordinary shares or to conduct ordinary share repurchases.
We
do not intend to pay any cash dividends either currently or in the foreseeable future on our ordinary shares. Additionally, we
do not intend to conduct ordinary share repurchases either currently or in the foreseeable future.