ITEM
1. BUSINESS
General
Elite
Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”, the
“registrant”, “we”, “us” or “our”) was incorporated on October 1, 1997 under the laws
of the State of Delaware, and its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”), was incorporated on August
23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the
State of Nevada.
We
are a specialty pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release generic products,
using proprietary know-how and technology. Our strategy includes improving off-patent drug products for life cycle management, developing
generic versions of controlled-release drug products with high barriers to entry and exploiting our proprietary and patented abuse resistance
technologies.
We
occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale
Facility”). The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”) and is a United States
Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.
Strategy
We
focus our efforts on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated New
Drug Applications (“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development of the other
products in our pipeline including the products with our partners; (iv) commercial exploitation of our products either by license and
the collection of royalties, or through the manufacture of our formulations; and (v) development of new products and the expansion of
our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.
Our
focus is on the development of various types of drug products, including generic drug products which require ANDAs as well as branded
drug products which require New Drug Applications (“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition
and Patent Term Restoration Act of 1984 (the “Drug Price Competition Act”).
We
believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes generic products
in various therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources
thereby allowing us to share costs of development and improve cash-flow.
Commercial
Products
We
own, license, contract manufacture or receive royalties from the following products currently being sold commercially:
Product
|
|
Branded
Product Equivalent
|
|
Therapeutic
Category
|
|
Launch
Date
|
Phentermine
HCl 37.5mg tablets (“Phentermine 37.5mg”)
|
|
Adipex-P®
|
|
Bariatric
|
|
April
2011
|
Phendimetrazine
Tartrate 35mg tablets (“Phendimetrazine 35mg”)
|
|
Bontril®
|
|
Bariatric
|
|
November
2012
|
Phentermine
HCl 15mg and 30mg capsules (“Phentermine 15mg” and “Phentermine 30mg”)
|
|
Adipex-P®
|
|
Bariatric
|
|
April
2013
|
Naltrexone
HCl 50mg tablets (“Naltrexone 50mg”)
|
|
Revia®
|
|
Pain
|
|
September
2013
|
Isradipine
2.5mg and 5mg capsules (“Isradipine 2.5mg” and “Isradipine 5mg”)
|
|
n/a
|
|
Cardiovascular
|
|
January
2015
|
Oxycodone
HCl Immediate Release 5mg, 10mg, 15mg, 20mg and 30mg tablets (“OXY IR 5mg”, “Oxy IR 10mg”, “Oxy IR
15mg”, “OXY IR 20mg” and “Oxy IR 30mg”)
|
|
Roxycodone®
|
|
Pain
|
|
March
2016
|
Trimipramine
Maleate Immediate Release 25mg, 50mg and 100mg capsules (“Trimipramine 25mg”, “Trimipramine 50mg”, “Trimipramine
100mg”)
|
|
Surmontil®
|
|
Antidepressant
|
|
May
2017
|
Dextroamphetamine
Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg,
20mg and 30mg tablets (“Amphetamine IR 5mg”, “Amphetamine IR 7.5mg”, “Amphetamine IR 10mg”, “Amphetamine
IR 12.5mg”, “Amphetamine IR 15mg”, “Amphetamine IR 20mg” and “Amphetamine IR 30mg”)
|
|
Adderall®
|
|
Central
Nervous System (“CNS”) Stimulant
|
|
April
2019
|
Dantrolene
Sodium Capsules 25mg, 50mg and 100mg (“Dantrolene 25mg”, “Dantrolene 50mg”, Dantrolene 100mg”)
|
|
Dantrium®
|
|
Muscle
Relaxant
|
|
June
2019
|
Dextroamphetamine
Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and
30mg capsules (“Amphetamine ER 5mg”, “Amphetamine ER 10mg”, “Amphetamine ER 15mg”, “Amphetamine
ER 20mg”, “Amphetamine ER 25mg”, and “Amphetamine ER 30mg”)
|
|
Adderall
XR®
|
|
Central
Nervous System (“CNS”) Stimulant
|
|
March
2020
|
Loxapine
Succinate 5mg, 10mg, 25mg and 50gm capsules (“Loxapine 5mg”, “Loxapine 10mg”, “Loxapine 25mg”,
and Loxapine 50mg”)
|
|
Loxapine®
|
|
Antipsychotic
|
|
May
2021
|
Note:
Phentermine 37.5mg is also referred to as “Phentermine Tablets”. Phentermine 15mg and Phentermine 30mg are collectively and
individually referred to as “Phentermine Capsules”. Phendimetrazine 35mg is also referred to as “Phendimetrazine Tablets”.
Naltrexone 50mg is also referred to as “Naltrexone Tablets”. Isradipine 2.5mg and Isradipine 5mg are collectively and individually
referred to as “Isradipine Capsules”. Oxy IR 5mg, Oxy IR 10mg, Oxy IR 15mg Oxy IR 20mg and Oxy IR 30mg are collectively and
individually referred to as “Oxy IR”. Trimipramine 25mg, Trimipramine 50mg, and Trimipramine 100mg are collectively and individually
referred to as “Trimipramine Capsules”. Amphetamine IR 5mg, Amphetamine IR 7.5mg, Amphetamine IR 10mg, Amphetamine IR 12.5mg,
Amphetamine IR 15mg, Amphetamine IR 20mg and Amphetamine IR 30mg are collectively and individually referred to as “Amphetamine
IR Tablets”. Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg are collectively and individually referred to as “Dantrolene
Capsules”. Amphetamine ER 5mg, Amphetamine ER 10mg, Amphetamine ER 15mg. Amphetamine ER 20mg, Amphetamine ER 25mg and Amphetamine
ER 30mg are collectively and individually referred to as “Amphetamine ER Capsules”. Loxapine 5gm, Loxapine 10mg, Loxapine
25mg and Loxapine 50mg are collectively and individually referred to as “Loxapine Capsules”.
Phentermine
37.5mg
The
approved ANDA for Phentermine 37.5mg was acquired pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”)
dated September 10, 2010 (the “Phentermine Purchase Agreement”).
Sales
and marketing rights for Phentermine 37.5mg are included in the licensing agreement between the Company and Precision Dose Inc. (“Precision
Dose”) dated September 10, 2010 (the “Precision Dose License Agreement”). Please see the section below titled
“Precision Dose License Agreement” for further details of this agreement.
Phentermine
37.5mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Phendimetrazine
Tartrate 35mg
The
ANDA for Phendimetrazine was acquired by Elite in 2013.
Phendimetrazine
35mg is currently a commercial product being manufactured at the Northvale Facility and distributed by Elite.
Phentermine
15mg and Phentermine 30mg
Phentermine
15mg capsules and Phentermine 30mg capsules were developed by the Company, with Elite receiving approval from the United States Food
and Drug Administration (“FDA”) of the related ANDA in September 2012.
Sales
and marketing rights for Phentermine 15mg and Phentermine 30mg are included in the Precision Dose License Agreement. Please see the section
below titled “Precision Dose License Agreement” for further details of this agreement.
Phentermine
15mg and Phentermine 30mg are currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Naltrexone
50mg
The
ANDA for Naltrexone 50mg was acquired by Elite in 2010.
Sales
and marketing rights for Naltrexone 50mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision
Dose License Agreement” for further details of this agreement. Naltrexone 50mg is currently being manufactured by Elite and
distributed by TAGI under the Precision Dose License Agreement.
Isradipine
2.5mg and Isradipine 5mg
The
approved ANDAs for Isradipine 2.5mg and Isradipine 5mg were acquired by Elite in 2013
Isradipine
2.5mg and Isradipine 5mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by
Epic Pharma LLC (“Epic”), on an exclusive basis.
Oxycodone
5mg, Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and Oxycodone 30mg (“Oxy IR”)
This
product was an Identified IR Product in the Epic Strategic Alliance Agreement Dated March 18, 2009 (the “Epic Strategic Alliance”).
Methods used by Epic in the manufacture of Oxy IR were developed at the Northvale Facility pursuant to the Epic Strategic Alliance, in
which we are entitled to a Product Fee of 15% of Profits through March 2026, as defined in the Epic Strategic Alliance. The first commercial
sale of Oxy IR occurred in March 2016. Epic has reported no profit or profit split for this product since September 2019.
Trimipramine
25mg, Trimipramine 50mg and Trimipramine 100mg
The
approved ANDA for Trimipramine was acquired by Elite in 2017.
Trimipramine
25mg, Trimipramine 50mg and Trimipramine 100mg are currently a commercial product being manufactured by Elite at the Northvale Facility
and distributed by Epic, on an exclusive basis.
Amphetamine
IR Tablets
On
December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®,
an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine
Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central
nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy.
Amphetamine
IR Tablets are currently a commercial product being manufactured by Elite and distributed by Lannett Company Inc. (“Lannett”),
on an exclusive basis.
Dantrolene
Capsules
The
approved ANDAs for Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg were acquired by Elite in 2013. Dantrolene Capsules are currently
a commercial product being manufactured by Elite at the Northvale Facility and distributed by Lannett, on an exclusive basis.
Amphetamine
ER Capsules
On
December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®,
an extended-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine
Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg, and 30 mg tablets. The product is a central nervous system
stimulant and is indicated for the treatment of ADHD and Narcolepsy.
Amphetamine
ER Capsules are currently a commercial product being manufactured by Elite and distributed by Lannett, on an exclusive basis.
Loxapine
Capsules
The
approved ANDA for Loxapine was acquired by Elite in 2013. Loxapine Succinate 5, 10, 25 and 50 mg are currently commercial products being
manufactured by Elite at the Northvale Facility, launched commercially in May 2021 and distributed by Burel Pharmaceuticals, Inc, an
affiliate of Prasco, LLC (“Burel”), on an exclusive basis.
Filed
products under FDA review
SequestOx™
- Immediate Release Oxycodone with sequestered Naltrexone
SequestOx™
is our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate. SequestOx™
is an immediate-release Oxycodone Hydrochloride containing sequestered Naltrexone which incorporates 5mg, 10mg, 15mg, 20mg and 30mg doses
of oxycodone into capsules.
In
January 2016, the Company submitted a 505(b)(2) New Drug Application for SequestOx™, after receiving a waiver of the $2.3 million
filing fee from the FDA. In March 2016, the Company received notification of the FDA’s acceptance of this filing and that such
filing has been granted priority review by the FDA with a target action under the Prescription Drug User Fee Act (“PDUFA”)
of July 14, 2016.
On
July 15, 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™
NDA is complete and the application is not ready for approval in its present form.
On
July 7, 2017, the Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the
amount of time that a drug is present at the maximum concentration in serum) of SequestOxTM was 4.6 hr. with a range of 0.5
hr. to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a range of 0.5 hr. to 12 hr. A key objective for
the study was to determine if the reformulated SequestOxTM had a similar Tmax to the comparator when taken with a high fat
meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January 30, 2018, the Company
reported positive topline results from a pilot study conducted for a modified SequestOx™ wherein, based on the results of this
pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with a Tmax range equivalent to the reference
product when conducted in a pivotal trial under fed conditions. The FDA has provided guidance for repeated bio-equivalence studies in
order to bridge the new formulation to the original SequestOx™ studies and also extended our filing fee waiver until July 2020.
Due to the prohibitive cost of such repeated bio-equivalence studies, the Company has paused development of this product.
There
can be no assurances of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances of
the success of any future clinical trials, or if such trials are successful, there can be no assurances that an intended future resubmission
of the NDA product filing, if made, will be accepted by or receive marketing approval from the FDA. In addition, even if marketing authorization
is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would
be in amounts that provide adequate return on the significant investments made to secure this marketing authorization.
Oxycodone
Hydrochloride extended release (generic version of Oxycontin®)
On
September 20, 2017, the Company filed an ANDA with the FDA for generic version of Oxycontin® (extended release Oxycodone Hydrochloride).
OxyContin® is approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and
for which alternative treatment options are inadequate. IMS reported approximately $2.3 billion in revenue for OxyContin® and its
equivalents in 2016. The FDA requested additional information relating to this filing, compliance with which would require significant
resources. Development of this product is currently paused, with the Company evaluating the feasibility of the continued development
of this product.
Generic
version of an antibiotic product
On
January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS
Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $85 million for
the twelve months ending September 30, 2019. The product is jointly owned by Elite and SunGen Pharma LLC. Upon approval by the FDA of
this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under review by the FDA.
There
can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period,
or at all. In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or
profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments
made to secure these marketing authorizations.
Approved
Products Not Yet Commercialized
Acetaminophen
and Codeine Phosphate
The
Company received approval from the FDA of an ANDA for a generic version of Tylenol® with Codeine (acetaminophen and codeine phosphate)
300mg/7.5mg, 300mg/15mg, 300mg/30mg and 300mg/60mg tablets. Acetaminophen with codeine is a combination medication indicated for
the management of mild to moderate pain, where treatment with an opioid is appropriate and for which alternative treatments are inadequate.
Acetaminophen with codeine products have annual U.S. sales of approximately $45 million according to IQVIA (formerly QuintilesIMS Health
Data). The Company is not pursuing licensing deals for any opioids at this time until the market changes. The Company will wait for the
market to stabilize before pursuing these opportunities.
There
can be no assurances in relation to any of the above approved products not yet commercialized, that there will be future revenues of
profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments
made to secure these marketing authorizations.
Discontinued
and Transferred Products
As
part of standard operating practices, the Company, from time to time, as relevant, conducts evaluations of all ANDAs owned, consisting,
without limitation, of ANDAs acquired or approved prior to the fiscal year ended March 31, 2021 (“Fiscal 2021”) and ANDAs
acquired or approved during the Fiscal 2021. Such evaluations include, without limitation, costs and benefits relating to each ANDA owned,
with such costs including those fees required under the FDA’s Generic Drug User Fee Amendment (“GDUFA”) which is significantly
influenced by the number of ANDAs owned, and other costs and benefits taking into consideration various specific market factors for each
ANDA. Those ANDAs with a cost/benefit profile not consistent with management criteria for continuation are identified for disposition
and effort is made to determine the optimal course of action to achieve disposition of the ANDA.
Licensing,
Manufacturing and Development Agreements
Sales
and Distribution Licensing Agreement with Epic Pharma LLC for SequestOx™
On
June 4, 2015, we executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic,
to market and sell in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned by us. The
2015 SequestOx™ License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5
million in non-refundable payments, with such amount consisting of $5 million due and owing on the execution date of the 2015 SequestOx™
License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the relevant product in
January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was
not achieved prior to the expiration of the agreement.
Precision
Dose License Agreement
On
September 10, 2010, we executed a License Agreement with Precision Dose (the “Precision Dose License Agreement”) to
market and distribute Phentermine 37.5mg, Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional
products that require approval from the FDA, through its wholly-owned subsidiary, TAGI, in the United States, Puerto Rico and Canada.
Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine 30mg were
launched in April 2013. Naltrexone 50mg was launched in September 2013. Precision Dose will have the exclusive right to market these
products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada.
Pursuant
to the Precision Dose License Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as
a percentage of the gross profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of
the products. The license fee is payable monthly for the term of the Precision Dose License Agreement. The milestone payments will be
paid in six instalments. The first instalment was paid upon execution of the Precision Dose License Agreement. The remaining instalments
are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of the Precision Dose License Agreement
is 15 years and may be extended for three successive terms, each of five years.
Master
Development and License Agreement with SunGen Pharma LLC
On
August 24, 2016, as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”)
to undertake and engage in the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products
are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the remaining
four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the FDA for Amphetamine
IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.
Under
the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products
and will share substantially in the profits from sales. Upon approval, the know-how and intellectual property rights to the products
will be owned jointly by Elite and SunGen. Three of the eight products will be jointly owned, three products will be owned by SunGen,
with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having exclusive marketing
rights. Elite will manufacture and package all eight products on a cost-plus basis.
On
December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®,
an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine
Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central
nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy. The product
is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis,
and it is currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in April 2019.
Please see the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett
Alliance
On
January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS
Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million for
the twelve months ending September 30, 2018. The product is jointly owned by Elite and SunGen. Upon approval by the FDA of this ANDA,
Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under review by the FDA.
On
December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®,
an extended-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine
Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system
stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). The product is jointly owned by
Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost plus basis and it is currently sold
pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see the section
below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett Alliance.
On
April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities under the SunGen Agreement
except for the antibiotic tablet product which has been filed with the FDA and the antibiotic capsule product not yet filed. These two
products remain jointly owned assets of the parties.
In
May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the SunGen Agreement for Amphetamine IR
and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name.
Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these
products from SunGen.
There
can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period,
or at all. In addition, even if marketing authorization is received, and even for those products for which marketing authorization has
already been received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or
profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations
or provide sufficient financial contributions to support costs of operations and overheads.
Strategic
Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA
On
May 22, 2018, and as amended on August 1, 2018, we entered into a license, manufacturing and supply agreement with Glenmark Pharmaceuticals
Inc. USA (“Glenmark”) to market the two Elite generic products described below in the United States with the option
to add products in the future (the “Glenmark Alliance”). The license for Methadone Tablets was terminated by mutual
agreement in December 2019. The license for Phendimetrazine Capsules was terminated by mutual agreement in February 2020. The licenses
for Trimipramine Capsules and Isradipine Capsules expired in May 2021.
During
the term of the Glenmark Alliance, Glenmark had exclusive marketing rights to the following products: Methadone Tablets, Trimipramine
Capsules and Isradipine Capsules. Glenmark also had semi-exclusive marketing rights to Phendimetrazine Tablets. All products included
in the Glenmark Alliance were manufactured by Elite. In addition to the purchase prices for the products, Elite also received license
fees in excess of 50% of gross profits, with such being defined as net sales less the price paid to Elite for the products, distribution
fees of less than 10% and shipping costs.
Marketing
License with Epic Pharma LLC
On
November 21, 2020 we entered into a license, manufacturing and supply agreement with Epic Pharma LLC (“Epic”) to market
the two Elite generic products described below in the United States (the “Epic Pharma License”).
Beginning
on May 23, 2021 and continuing until the agreement terminates, Epic has exclusive marketing rights to Trimipramine Capsules and Isradipine
Capsules. The products are manufactured by Elite for Epic on a cost plus basis. In addition to the purchase prices for the products,
Elite also receives license fees of 50% of gross profits or greater, with such being defined as net sales less the price paid to Elite
for the products, distribution fees of less than 10% and shipping costs. The initial term of the agreement is three (3) years from the
execution of the agreement. Epic has the option to extend the agreement for an additional two (2) years if certain license fee targets
are met.
Marketing
License with Prasco, LLC and Burel Pharmaceuticals, Inc.
On
February 14, 2020, and as amended on July 30, 2020, the Company entered into a license, manufacturing and supply agreement with Prasco,
LLC and its affiliate Burel Pharmaceuticals, Inc. (“Burel”) to market generic Loxapine Succinate capsules in the United
States (the “Burel License”). Burel sales for the product began May 2021.
Under
the agreement, Burel has exclusive marketing rights to Loxapine. The product is manufactured by Elite, and the Company receives manufacturing
fees and license fees of 50% of gross profits or greater, with such being defined as net sales less the price paid to Elite for the products,
distribution fees of less than 10% and shipping costs. The term of the agreement is three (3) years from the execution date of the agreement
and will automatically renew for one (1) year periods unless one of the parties gives prior written notice.
Strategic
Marketing Alliances with Lannett Company Inc
The
Company has entered into two separate license, supply and distribution agreements with Lannett Company Inc. (“Lannett”).
The first agreement, dated March 6, 2019, relates to products that were co-developed with SunGen (the “Lannett-SunGen Product Alliance”).
The second agreement, dated April 9, 2019, relates to products that were solely developed by Elite (the “Lannett-Elite Product
Alliance”). Both agreements are collectively and individually referred to as the “Lannett Alliance”).
Pursuant to
Lannett-SunGen Product Alliance, Lannett will be the exclusive U.S. distributor for Amphetamine IR Tablets and Amphetamine ER Capsules.
Elite manufactures these products, which are purchased, marketed and distributed by Lannett under the Lannett label. In addition to the
purchase prices for the products, Elite will receive license fees well in excess of 50% of net profits, which will be shared equally
with SunGen, pursuant to the SunGen Agreement. Net profits are defined as net sales less the price paid to Elite for the products, distribution
fees (less than 10%) and shipping costs. The Lannett-SunGen Product Alliance has an initial term of three years and automatically renews
for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits
Lannett to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing
and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelve months from
the first commercial sale, the average license fee paid by Lannett for such product is less than $100,000 for a six month sales period.
In addition to manufacturing fees and license fees, Lannett also paid a $750,000 milestone, upon the March 2020 commercial launch of
Amphetamine ER Capsules. This milestone payment was earned during March 2020 and was shared equally by Elite and SunGen, pursuant to
the SunGen Agreement.
The
first commercial shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg,
12.5mg, 15mg, 20mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in April 2019.
The
first commercial shipment of Amphetamine ER Capsules, a generic version of Adderall XR®, with strengths of 5mg, 10mg,
15mg, 20mg, 25mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in March 2020.
Pursuant
to the Lannett-Elite Product Alliance, Lannett will be the exclusive U.S. distributor for Dantrolene Capsules. The first commercial shipment
of Dantrolene Capsules, with strengths of 25mg, 50mg and 100mg occurred in June 2019.
Pursuant
to the Lannett-Elite Product Alliance, Elite manufactures for Lannett’s purchase, marketing, and distribution of Dantrolene Capsules
under the Lannett label. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of
gross profits. Gross profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%)
and shipping costs. Lannett will have exclusive marketing rights to Dantrolene Capsules. The Lannett-Elite Product Alliance has an initial
term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least three months’ prior written
notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at
any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less
than $100,000 for a six month sales period. In addition to manufacturing fees and license fees.
Please
also note that in May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the SunGen Agreement
for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under
Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and
obligations for these products from SunGen.
Products
Under Development
Elite’s
research and development activities include developing its proprietary abuse deterrent technology and the development of a range of abuse
deterrent opioid products that utilize this technology or other approaches to abuse deterrence.
Elite’s
proprietary abuse-deterrent technology utilizes the pharmacological approach to abuse deterrence and consists of a multi-particulate
capsule which contains an opioid agonist in addition to naltrexone, an opioid antagonist used primarily in the management of alcohol
dependence and opioid dependence. When this product is taken as intended, the naltrexone is designed to pass through the body unreleased
while the opioid agonist releases over time providing therapeutic pain relief for which it is prescribed. If the multi-particulate beads
are crushed or dissolved, the opioid antagonist, naltrexone, is designed to release. The absorption of the naltrexone is intended to
block the euphoria by preferentially binding to same receptors in the brain as the opioid agonist and thereby reducing the incentive
for abuse or misuse by recreational drug abusers.
We
filed an NDA for the first product to utilize our abuse deterrent technology, Immediate Release Oxycodone 5mg, 10mg, 15mg, 20mg and 30mg
with sequestered Naltrexone (collectively and individually referred to as “SequestOx™”), on January 14, 2016.
Please see “Filed products under FDA review; SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone”
above and please note that continued development of this product is currently paused.
The
Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further,
we have divested some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.
On
January 3, 2019, the Company filed an Abbreviated New Drug Application with the US Food and Drug Administration for a generic version
of an antibiotic product. Please see “Filed products under FDA review” above. Please note that there can
be no assurances of this product receiving marketing authorization or achieving commercialization. In addition, even if marketing authorization
is received and the product is commercialized, there can be no assurances of future revenues or profits in such amounts that would provide
adequate return on the significant investments made to secure marketing authorization for this product. Please also see the section below
titled “Master Development and License Agreement with SunGen Pharma LLC”.
Please
note that, while the FDA is required to review applications within certain timeframes, during the review process, the FDA frequently
requests that additional information be submitted. The effect of such request and subsequent submission can significantly extend the
time for the NDA review process. Until an NDA is actually approved, there can be no assurances that the information requested and submitted
will be considered adequate by the FDA to justify approval. The packaging and labeling of our developed products are also subject to
FDA regulation. Based on the foregoing, it is impossible to anticipate the amount of time that will be needed to obtain FDA approval
to market any product. In addition, there can be no assurances of the Company filing the required application(s) with the FDA or of the
FDA approving such application(s) if filed, and the Company’s ability to successfully develop and commercialize products incorporating
its abuse deterrent technology is subject to a high level of risk as detailed in “Item 1A-Risk Factors-Risks Related to our
Business” of this Annual Report on Form 10-K.
Abuse-Deterrent
and Sustained Release Opioids
The
abuse-deterrent opioid products utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These products
are combinations of a narcotic agonist formulation intended for use in patients with pain, and an antagonist, formulated to deter abuse
of the drug. Both, agonist, and antagonist, have been on the market for a number of years and sold separately in various dose strengths.
The
Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further,
we have divested some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.
Patents
Since
our incorporation, we have secured the following patents, of which two have been assigned for a fee to another pharmaceutical company.
Our patents are:
PATENT
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EXPIRATION
DATE
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U.S.
patent 8,182,836
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March
2024
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U.S.
patent 8,425,933
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March
2025
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U.S.
patent 8,703,186
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March
2025
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Canadian
patent 2,521,655
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April
2023
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Canadian
patent 2,541,371
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April
2024
|
U.S.
patent 9,056,054
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June
2030
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U.S.
patent 10213388
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June
2030
|
We
intend to apply for patents for other products in the future; however, there can be no assurance that any of the pending applications
or other applications which we may file will be granted. We have also filed corresponding foreign applications for key patents.
Prior
to the enactment in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade (“GATT”),
the exclusive rights afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under GATT, the term of
any U.S. Patent granted on an application filed subsequent to June 8, 1995 terminates 20 years from the date on which the patent application
was filed in the United States or the first priority date, whichever occurs first. Future patents granted on an application filed before
June 8, 1995, will have a term that terminates 20 years from such date, or 17 years from the date of grant, whichever date is later.
Under
the Drug Price Competition Act, a U.S. product patent or use patent may be extended for up to five years under certain circumstances
to compensate the patent holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price Competition
Act are available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent per
drug product. There can be no assurance that we will be able to take advantage of this law.
Also,
different countries have different procedures for obtaining patents, and patents issued by different countries provide different degrees
of protection against the use of a patented invention by others. There can be no assurance, therefore, that the issuance to us in one
country of a patent covering an invention will be followed by the issuance in other countries of patents covering the same invention,
or that any judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued in one country will be
similar to the judicial interpretation given to a corresponding patent issued in another country. Furthermore, even if our patents are
determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around
such patents and compete with us using the resulting alternative technology.
Trademarks
SequestOx™
is a trademark owned by Elite.
We
currently plan to license at least some of our products to other entities in the marketing of pharmaceuticals but may also sell products
under our own brand name in which case we may register trademarks for those products.
Other
Business Factors and Details
Government
Regulation and Approval
The
design, development, and marketing of pharmaceutical compounds, on which our success depends, are intensely regulated by governmental
regulatory agencies, in particular the FDA. Non-compliance with applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal prosecution based on products or manufacturing practices that
violate statutory requirements. In addition, administrative remedies can involve voluntary withdrawal of products, as well as the refusal
of the FDA to approve ANDAs and NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory due process
procedures.
Before
a drug may be marketed, it must be approved by the FDA either by an NDA or an ANDA, each of which is discussed below.
NDAs
and NDAs under Section 505(b) of the Drug Price Competition Act
The
FDA approval procedure for an NDA is generally a two-step process. During the Initial Product Development stage, an investigational new
drug application (“IND”) for each product is filed with the FDA. A 30-day waiting period after the filing of each
IND is required by the FDA prior to the commencement of initial clinical testing. If the FDA does not comment on or question the IND
within such 30-day period, initial clinical studies may begin. If, however, the FDA has comments or questions, they must be answered
to the satisfaction of the FDA before initial clinical testing may begin. In some instances, this process could result in substantial
delay and expense. Initial clinical studies generally constitute Phase I of the NDA process and are conducted to demonstrate the product
tolerance/safety and pharmacokinetic in healthy subjects.
After
Phase I testing, extensive efficacy and safety studies in patients must be conducted. After completion of the required clinical testing,
an NDA is filed, and its approval, which is required for marketing in the United States, involves an extensive review process by the
FDA. The NDA itself is a complicated and detailed application and must include the results of extensive clinical and other testing, the
cost of which is substantial. However, the NDA filings contemplated by us, which are already marketed drugs, would be made under Sections
505 (b)(1) or 505 (b)(2) of the Drug Price Competition Act, which do not require certain studies that would otherwise be necessary; accordingly,
the development timetable should be shorter. While the FDA is required to review applications within a certain timeframe, during the
review process, the FDA frequently requests that additional information be submitted. The effect of such request and subsequent submission
can significantly extend the time for the NDA review process. Until an NDA is approved, there can be no assurance that the information
requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labelling of our developed products
are also subject to FDA regulation. It is impossible to anticipate the amount of time that will be needed to obtain FDA approval to market
any product.
Whether
or not FDA approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained
prior to the commencement of marketing of the product in that country. We intend to conduct all marketing in territories other than the
United States through other pharmaceutical companies based in those countries. The approval procedure varies from country to country,
can involve additional testing, and the time required may differ from that required for FDA approval. Although there are some procedures
for unified filings for certain European countries, in general each country has its own procedures and requirements, many of which are
time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory
authorities after the relevant applications are filed. After such approvals are obtained, further delays may be encountered before the
products become commercially available.
ANDAs
The
FDA approval procedure for an ANDA differs from the procedure for an NDA in that the FDA waives the requirement of conducting complete
clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates
the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect.
“Bioequivalence” compares the bioavailability of one drug product with another, and when established, indicates that
the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for the generic drug and the
previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or,
in the case of a new dosage form, is suitable for use for the indications specified.
The
timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents
for the drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may
be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory exclusivity period
can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date.
In
May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on
individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic
Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual that has committed
certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations
that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs
by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications.
Neither we nor any of our employees have ever been subject to debarment. We do not believe that we receive any services from any debarred
person.
Controlled
Substances
We
are also subject to federal, state, and local laws of general applicability, such as laws relating to working conditions. We are also
licensed by, registered with, and subject to periodic inspection and regulation by the Drug Enforcement Agency (“DEA”)
and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that we currently
develop or may develop in the future may be subject to regulations under the Controlled Substances Act and related statutes. As we manufacture
such products, we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs.
cGMP
All
facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity
with cGMP regulations issued by the FDA. We engage in manufacturing on a commercial basis for distribution of products and operate our
facilities in accordance with cGMP regulations. If we hire another company to perform contract manufacturing for us, we must ensure that
our contractor’s facilities conform to cGMP regulations.
Compliance
with Environmental Laws
We
are subject to comprehensive federal, state and local environmental laws and regulations that govern, among other things, air polluting
emissions, wastewater discharges, solid and hazardous waste disposal, and the remediation of contamination associated with current or
past generation handling and disposal activities, including the past practices of corporations as to which we are the legal successor
or in possession. We do not expect that compliance with such environmental laws will have a material effect on our capital expenditures,
earnings, or competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental
laws or regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws will
not have a material adverse effect on our capital expenditures, earnings, or competitive position.
Competition
We
have competition with respect to our principal areas of operation. We develop and manufacture generic products, products using controlled-release
drug technology, products utilizing abuse deterrent technologies, and we develop and market (either on our own or by license to other
companies) generic and proprietary controlled-release and abuse deterrent pharmaceutical products. In both areas, our competition consists
of those companies which develop controlled release, abuse deterrent drugs and alternative drug delivery systems. We do not represent
a significant presence in the pharmaceutical industry.
An
increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. Some of the major pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug
delivery companies. Many of these companies have greater financial and other resources as well as more experience than we do in commercializing
pharmaceutical products. Certain companies have a track record of success in developing controlled-release drugs. Significant among these
are, without limitation, Pfizer, Sandoz (a Novartis company), Mylan Laboratories, Inc., Endo Pharmaceuticals, Inc., Teva Pharmaceuticals
Industries Ltd., Amneal Laboratories, Inc., Mallinckrodt, and Aurobindo. Each of these companies has developed expertise in certain types
of drug delivery systems, although such expertise does not carry over to developing a controlled-release version of all drugs. Such companies
may develop new drug formulations and products or may improve existing drug formulations and products more efficiently than we can. In
addition, almost all of our competitors have vastly greater resources than we do. While our product development capabilities and, if
obtained, patent protection may help us to maintain our market position in the field of advanced drug delivery, there can be no assurance
that others will not be able to develop such capabilities or alternative technologies outside the scope of our patents, if any, or that
even if patent protection is obtained, such patents will not be successfully challenged in the future.
In
addition to competitors that are developing products based on drug delivery technologies, there are also companies that have announced
that they are developing opioid abuse-deterrent products that might compete directly or indirectly with Elite’s products. These
include, but are not limited to Pfizer Inc., Collegium Pharmaceuticals, Inc., and Purdue Pharma LP.
We
also face competition in the generic pharmaceutical market. The principal competitive factors in the generic pharmaceutical market include:
(i) introduction of other generic drug manufacturers’ products in direct competition with our products under development, (ii)
introduction of authorized generic products in direct competition with any of our products under development, particularly if such products
are approved and sold during exclusivity periods, (iii) consolidation among distribution outlets through mergers and acquisitions and
the formation of buying groups, (iv) ability of generic competitors to quickly enter the market after the expiration of patents or exclusivity
periods, diminishing the amount and duration of significant profits, (v) the willingness of generic drug customers, including wholesale
and retail customers, to switch among pharmaceutical manufacturers, (vi) pricing pressures and product deletions by competitors, (vii)
a company’s reputation as a manufacturer and distributor of quality products, (viii) a company’s level of service (including
maintaining sufficient inventory levels for timely deliveries), (ix) product appearance and labelling and (x) a company’s breadth
of product offerings.
Sources
and Availability of Raw Materials; Manufacturing
A
significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks
of doing business abroad, including:
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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 customers, suppliers and other third parties
for core business aspects”
Dependence
on One or a Few Major Customers
Each
year we have had one or a few customers that have accounted for a large percentage of our limited revenues, therefore the termination
or restructuring of a contract with a customer may result in the loss of material amount or substantially all of our revenues. We are
constantly working to develop new relationships with existing or new customers, but despite these efforts we may not, at the time that
any of our current contracts expire, have other contracts in place generating similar or material revenue. We have agreements with Lannett,
Epic Pharma, Burel Pharmaceuticals and Precision Dose for the licensing, sales and distribution of products that we manufacture. We receive
revenues to manufacture these products and also receive a profit split or royalties based on in-market sales of the products. Please
see the Risk Factor in Part I, Item 1A entitled We are dependent on a small number of customers, suppliers and other third parties for
core business aspects”
Our
Reporting Segments
We currently operate in two
segments, which are products whose marketing approvals were secured via an ANDA and products whose marketing approvals were secured via
an NDA. ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals. For the
years ended March 31, 2021 and 2020 revenue from our ANDA segment were $25.2 million and $17.0 million, respectively. For the years ended
March 31, 2020 and 2019 revenue from our NDA segment were $0.2 million and $1.0 million, respectively.
Segment
information is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have determined
to be the chief executive office, for the purposes of making decisions about allocating resources and assessing performance of the Company.
There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating
decision maker does not review this information by segment.
Employees
As of June 7, 2021, we had
43 full time employees. Full-time employees are engaged in operations, administration, research, and development. None of our employees
is represented by a labor union and we have never experienced a work stoppage. We believe our relationship with our employees to be good.
However, our ability to achieve our financial and operational objectives depends in large part upon our continuing ability to attract,
integrate, retain, and motivate highly qualified personnel, and upon the continued service of our senior management and key personnel.
ITEM
1A. RISK FACTORS
An
investment in the Company’s securities involves a high degree of risk. You should carefully consider the risks described below
as well as other information provided to you in this report, including information in the section of this document entitled “Forward
Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties
not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of
our Common Stock could decline, and you may lose all or part of your investment.
In
addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating an
investment in us and in analyzing our forward-looking statements.
Risk
Factor Summary
The
following is a summary of the risk factors contained in this Annual Report on Form 10-K that could adversely affect our business, ability
to operate, financial condition, results of operation, equity and cash flows. This summary does not address all of the risks that we
face and is qualified in its entirety by reference to the more detailed descriptions included below. In addition to this summary, we
strongly encourage you to carefully review the full risk factors in their entirety.
Business
Related Risks
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The
pharmaceutical industry is highly competitive.
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Global
pandemic and natural disasters.
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Interruptions
in operations at our sole facility could have a material adverse effect on our business.
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We
are dependent on a small number of customers, suppliers and other third parties for core business aspects.
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We
may sell, withdraw or discontinue manufacture of certain products.
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We
may fail to successfully identify, develop, complete clinical trials, secure regulatory approvals and commercialize new products.
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Our
operations could be disrupted by failure of our information systems or cyber-attacks.
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Delays
in product development may result in failure to achieve adequate return on investment.
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Our
business is dependent on market perceptions, social and political pressures.
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Unstable
economic conditions may adversely affect our business.
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We
depend on qualified scientific and technical personnel and our ability to attract and retained such.
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Unsuccessful
collaboration or licensing arrangements could limit revenues and product development.
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Financial
and Liquidity Related Risks
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We
have a relatively limited operating history and our operating results could fluctuate significantly.
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Our
ability to fund operations is uncertain and we may require additional financing to meet objectives.
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We
have substantial indebtedness which may adversely affect our financial condition.
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There
is a risk impairment of significant intangible assets on our balance sheet.
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GAAP
requires estimates, judgements and assumptions which inherently contain uncertainties.
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Legal
and Regulatory Risks
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The
pharmaceutical industry is heavily regulated which creates uncertainty and substantial compliance costs.
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Decreases
in the degree to which individuals are covered by healthcare insurance and levels of third party reimbursement could result in decreased
use of our products and lower prices.
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Our
business may be adversely affected by legislation or healthcare regulatory reform and initiatives.
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Use
of generics may be limited through legislative, regulatory or efforts of pharma companies.
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New
tariffs and evolving trade policy between the US and other countries may adversely affect our business.
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The
DEA could limit the availability of active ingredients used in many of our products.
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Changes
in FDA approval requirements may prevent or delay approval of new products.
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We
received a CRL from the FDA indicating that the SequestOxTM NDA is not ready for approval.
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Regulatory
factors may cause us to be unable to manufacture products or face interruptions in our manufacturing process.
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Agreements
between branded pharmaceutical companies and generic pharmaceutical companies are facing increased government scrutiny in the United
States and Internationally.
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Litigation
and Liability Related Risks
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We
may not be able to obtain or maintain adequate insurance coverages.
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Litigation,
product liability claims, product recalls, government investigations and other significant legal proceedings are common in the pharmaceutical
industry.
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Our
products contain narcotic ingredients which may subject us to increased litigation risk and regulation.
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Public
concern over abuse of opioids has negatively affected our business.
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Illegal
distribution and third party sale of counterfeit versions of our products could have a detrimental effect on our reputation and business.
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Structural
and Organizational Risks
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We
have identified material weaknesses in internal controls in prior years.
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Provisions
of our Articles of Incorporation could deter a change of management and discourage offers to acquire us.
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Intellectual
Property Related Risks
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Our
ability to protect intellectual property rights and successfully defend third party allegations of intellectual property infringement
is vital to our business and uncertain.
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Risks
Related to our Common Shares
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Dilution
from issuance of shares to Lincoln Park, Directors, Employees, Consultants or upon exercise of warrants and options or the perception
that dilution may occur could cause the price per share of common stock to fall.
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Our
common stock is a penny stock, quoted on the OTC bulletin board, with rules in place that could limit trading and liquidity of our
shares, increased transaction costs that could adversely affect our price per share.
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Shareholder
activism could negatively affect us.
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Our
stock price has been volatile.
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Capital
raises through sales of securities may cause substantial dilution to existing shareholders.
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Issuance
of shares of common or preferred stock could make achieving a change of control more difficult.
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We
have no plans to pay regular dividends or conduct ordinary share purchases.
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Business
Related Risks
The
pharmaceutical industry is highly competitive.
The
pharmaceutical industry is highly competitive and subject to rapid and significant technological change, and we may be unable to compete
effectively, which could impair our ability to implement our business model. Competitive factors faced include, without limitation, product
development, safety, efficacy, commercialization, marketing, promotion, product quality, cost-effectiveness, reputation, service, patient
convenience, access to scientific and technical information, and ability to manage operations in an economic environment that is severely
impacted by a global pandemic such as COVID-19. In addition, the pharmaceutical industry is undergoing rapid and significant technological
change, and we expect competition to intensify as technical advances in each field are made and become more widely known. An increasing
number of pharmaceutical companies have been or are becoming interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. We expect that competition in the field of drug delivery will increase in the future as other
specialized research and development companies begin to concentrate on this aspect of the business. Some of the major pharmaceutical
companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and
technologies and some have invested funds in specialized drug delivery companies. Many of our competitors have longer operating histories
and, they, and future competitors, may have greater financial, research and development, marketing, and other resources than we do. Furthermore,
recent trends in this industry include market consolidation, which may further concentrate financial, technical, market and other strengths
and resources with the result being a further increase competitive pressures existent in this industry. Such companies may develop new
formulations and products, or may improve existing ones, more efficiently than we can. Our success, if any, will depend in part on our
ability to keep pace with the changing technology in the fields in which we operate.
As
we expand our presence in the generic pharmaceuticals market our product candidates may face intense competition from brand-name companies
that have taken aggressive steps to thwart competition from generic companies. In particular, brand-name companies continue to sell or
license their products directly or through licensing arrangements or strategic alliances with generic pharmaceutical companies (so-called
“authorized generics”). No significant regulatory approvals are required for a brand-name company to sell directly or through
a third party to the generic market, and brand-name companies do not face any other significant barriers to entry into such market. In
addition, such companies continually seek to delay generic introductions and to decrease the impact of generic competition, using tactics
which include, without limitation:
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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.
In
addition, sales of our products may be adversely affected by the continuing consolidation within the retail and wholesale pharmaceutical
markets. Our products, whether sold directly by the Company or through third parties that are licensed to market and distribute our products
are sold in large part to a market that is comprised of a relatively few retail drug chains, wholesalers, and managed care organizations,
with such entities continuing to undergo consolidation. Such consolidation may provide these customers or our products with additional
purchasing leverage, and consequently, may increase the pricing pressures faced by us. Additionally, the emergence of large buying groups
representing independent retail pharmacies, and the prevalence and influence of managed care organizations and similar institutions,
enable those groups to extract price discounts on our products and our revenues and quarterly results comparisons may also be affected
by fluctuations in the buying patterns of retail chains, major distributors, and other trade buyers.
Furthermore,
policies regarding returns, rebates, allowances and chargebacks, and marketing programs adopted by wholesalers may reduce our revenues
in future fiscal periods. Based on industry practice, generic drug manufacturers have liberal return policies and have been willing to
give customers post-sale inventory allowances. Such industry practices apply to the current sales of our products by our marketing partners,
which in turn effect profit splits and license fees received, and they will also affect prospective future sales made directly by Company.
Under
these arrangements, from time to time, customers are given credits on our generic products that are held by them in inventory after there
is a decrease in the market prices of the same generic products due to competitive pricing. Therefore, if new competitors enter the marketplace
and significantly lower the prices of any of their competing products, the price of our products would also likely be reduced. As a result,
we, or are marketing partners, would be obligated to provide credits to our customers who are then holding inventories of such products,
which could reduce sales revenue, profit splits, license fees and gross margin for the period the credit is provided. Like most competitors
in this market, our marketing partners, or us in the case of prospective direct sales made by the Company, also give credits for chargebacks
to wholesalers that have contracts with our marketing partners, or us, prospectively, for their sales to hospitals, group purchasing
organizations, pharmacies, or other customers. A chargeback is the difference between the price the wholesaler pays and the price that
the wholesaler’s end-customer pays for a product. Although, our marketing partners establish, and prospectively we would also establish
reserves based on prior experience and best estimates of the impact that these policies may have in subsequent periods, we cannot ensure
that such reserves established are adequate or that actual product returns, rebates, allowances, and chargebacks will not exceed estimates.
Differences between established reserves and actual amounts of such credits and charges, could result in a material adverse effect on
our business, financial condition, results of operations, cash flow and stock price.
The
existence and occurrence of any of the above could have a material adverse effect on our business, financial condition, results of operations,
cash flow, ability to operate and stock price.
Global
pandemic and natural disasters.
Widespread
health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events could materially and adversely
affect our business.
Public
health outbreaks, epidemics or pandemics, such as the coronavirus, could materially and adversely impact our business. For example, the
COVID-19 pandemic has resulted in global business and economic disruption and extreme volatility in the financial markets as many jurisdictions
have placed restrictions on travel and non-essential business operations and implemented social distancing, shelter-in-place, quarantine
and other similar measures for their residents with the stated objective being to contain the spread of the virus. In response to these
public health directives and orders, we have implemented alternative working practices and work-from-home capabilities for appropriate
employees, installed improved air flow and filtration at the Northvale Facility, as well as social distancing, modified schedules, shift
rotation, daily temperature checks, multiple hand sanitation stations and other similar policies at our manufacturing facilities. We
have also suspended international and domestic travel on behalf of the Company. Despite these actions, the Company continues to be exposed
to the risk of a significant disruption or ceasing of all manufacturing or other operations resulting from laws, executive orders or
other directives from various governmental authorities which could require such disruption or ceasing of operations due to our products
and or operations being determined to be non-essential or any other reason for which it has been determined that such actions taken against
the Company will further the protection of the general population from harm that may be caused or related to COVID-19 or any similar
threat to public health.
The
effects of COVID-19, including these public health directives and orders and our policies, have had an impact on our business and may
in the future materially disrupt our business, including our manufacturing and supply chain operations by significantly reducing our
output, negatively impact our productivity and delay our product development programs. The global pandemic may have significant impacts
on third-party arrangements, including those with our manufacturing, supply chain and distribution partners, information technology and
other vendors and other service providers and business partners. For example, there may be significant disruptions in the ability of
any or all of these third-party providers to meet their obligations to us on a timely basis, or at all, which may be caused by their
own financial or operational difficulties, including any closures of their facilities pursuant to a governmental order or otherwise.
As a result of these disruptions and other factors, including changes in our workforce availability and increased demand for any of our
products during this pandemic, our ability to meet our obligations to third-party marketing and distribution partners may be negatively
impacted. As a result, the Company, or our third-party providers may deliver notices of the occurrent of force majeure or similar
event under certain contracts which could result in prolonged commercial disputes and ultimately legal proceedings to enforce contractual
performance and/or recover losses. Any such occurrences could result in significant management distraction and use of resources and,
in the event of an adverse judgment, could result in significant cash payments. Further, the publicity of any such dispute could harm
our reputation and make the negotiation of any replacement contracts more difficult and costly, thereby prolonging the effects of any
resulting disruption in our operations. Such disruptions could be acute with respect to certain of our raw material suppliers where we
may not have readily accessible alternatives or alternatives may take longer to source than usual. While we attempt, when possible, to
mitigate our raw material supply risks through stock management and alternative sourcing strategies, some raw materials are only available
from one source. Any of these disruptions could harm our ability to meet consumer demand, including any increase in demand for any of
our products used during a pandemic.
While
to date we have not experienced a significant detrimental change in customer demand, the heightened possibility of changes in customer
demand as the COVID-19 pandemic evolves remains. The current economic crisis and higher levels of unemployment rates resulting from COVID-19
have the potential to significantly reduce individual disposable income and depress consumer confidence, which could limit the ability
of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain medical procedures in the short-,
medium- and long term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently performing
various medical procedures and an increased portion of the general public are reducing their consumption of medical services which may
result in decreased demand for certain of our products.
Furthermore,
we are unable to predict the impact that COVID-19 may have going forward on the business, results of operations or financial position
of any of our major customers, which could impact each customer to varying degrees and at different times and could ultimately impact
our own financial performance. Certain or many of our competitors may also be better equipped to weather the impact of COVID-19 domestically
and may be better equipped to address changes in customer demand. Additionally, our product development programs may be adversely affected
by the global pandemic and the prioritization of production during this pandemic. The public health directives in response to COVID-19
requiring social distancing and restricting non-essential business operations have in certain cases caused and may continue to cause
delays, increased costs and additional challenges in our product development programs, including obtaining adequate patient enrolment
and successfully bringing product candidates to market. In addition, we may face additional challenges receiving regulatory approvals
as previously scheduled dates or anticipated deadlines for action by the FDA on our applications and products in development, including
dates scheduled for 2021, if any, could be subject to delays beyond our control as regulators such as the FDA focus on COVID-19.
To
the extent our operating cash flows, together with our cash, cash equivalents, restricted cash and restricted cash equivalents, become
insufficient to cover our liquidity and capital requirements, including funds for any future acquisitions and other corporate transactions,
we may be required to seek third-party financing, and/or engage in one or more capital markets transactions. The COVID-19 pandemic has
resulted in significant disruptions to and volatility in the local, national and global financial markets and, there can be no assurance
that we would be able to obtain any required financing on a timely basis or at all. Further, lenders and other financial institutions
could require us to agree to more restrictive covenants, grant liens on our assets as collateral (resulting in an increase in our total
outstanding secured indebtedness) and/or accept other terms that are not commercially beneficial to us in order to obtain financing,
as a result of the actual or perceived impact that financial institutions believe the pandemic will have on our business. Such terms
could further restrict our operations and exacerbate any impact on our results of operations and liquidity that may result from COVID-19.
In
addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of
our ordinary shares.
Additionally,
COVID-19 could increase the magnitude of many of the other risks described herein and have other adverse effects on our operations that
we are not currently able to predict. For example, the global economic disruptions and volatility in the financial markets could further
depress our ability to obtain or renew insurance on satisfactory terms or at all. Additionally, we may also be required to delay or limit
our internal strategies in the short- and medium-term by, for example, redirecting significant resources and management attention away
from implementing our strategic priorities or executing opportunistic corporate development transactions. The magnitude of the effect
of COVID-19 on our business will depend, in part, on the length and severity of the restrictions (including the effects of recently announced
“re-opening” plans following a recent slowdown of the virus infection rate in certain countries and localities) and other
limitations on our ability to conduct our business in the ordinary course. The longer the pandemic continues or resurges, the more severe
the impacts described above will be on both our domestic business and international supply chains. The full extent to which COVID-19
may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with accuracy or confidence,
such as the duration of the outbreak, the severity of COVID-19, the possibility of re-occurrences of outbreaks of COVID-19, future legal
requirements, executive orders or other actions requiring compliance by the Company and general population, or the effectiveness of actions
to contain and treat COVID-19, particularly in the geographies where we or our third party suppliers or other strategic partners operate
or our customers and end-users of our products reside. Taking the speed and frequency of continuously evolving developments with respect
to this pandemic, or in the event of a pandemic relating to something other than COVID-19, we cannot reasonably estimate the magnitude
of any impact on our operations, and the full extent to which COVID-19 or another pandemic may impact, in a material and adverse fashion,
our business, financial condition, results of operations and cash flow, and could cause significant volatility in the trading prices
of our securities.
Furthermore,
the occurrence of one or more unexpected events, including fires, tornadoes, tsunamis, hurricanes, earthquakes, floods, and other forms
of severe hazards in the United States or in other countries in which we or our suppliers operate or are located could adversely affect
our operations and financial performance. We have lost power or had to shut down operations as a result of extreme weather, natural disasters,
most notably Superstorm Sandy. These types of unexpected events could result in physical damage to and complete or partial closure of
one or more of distribution centers or manufacturing facilities, or the temporary or long-term disruption in the supply of products,
and/or disruption of our ability to deliver products to customers. Further, the long-term effects of climate change on general economic
conditions and the pharmaceutical manufacturing and distribution industry in particular are unclear, and changes in the supply, demand
or available sources of energy and the regulatory and other costs associated with energy production and delivery may affect the availability
or cost of goods and services, including natural resources, necessary to run our businesses. Existing insurance arrangements may not
provide protection for the costs that may arise from such events, particularly if such events are catastrophic in nature or occur in
combination. Any long-term disruption in our ability to service our customers from one or more distribution centers or outsourcing facilities
could have a material adverse effect on our operations, our business, results of operations and stock price.
Interruptions
in operations at our sole facility could have a material adverse effect on our business.
If
our manufacturing facility or the facilities of any of our suppliers fail to comply with regulatory requirements or encounter other manufacturing
difficulties, it could adversely affect our ability to manufacture and supply products. All facilities and manufacturing processes used
for the manufacture of pharmaceutical products are subject to inspection by regulatory agencies at any time and must be operated in conformity
with current good manufacturing practice (“cGMP”) and, in the case of controlled substances, DEA regulations. Compliance
with the FDA’s cGMP and DEA requirements applies to both drug products seeking regulatory approval and to approved drug products.
In complying with cGMP requirements, pharmaceutical manufacturing facilities must continually expend significant time, money and effort
in production, recordkeeping, quality assurance and quality control so that their products meet applicable specifications and other requirements
for product safety, efficacy and quality. Failure to comply with applicable legal requirements subjects us, our manufacturing facilities
and the facilities of our third-party suppliers to possible legal or regulatory action, including, without limitation, shutdown, which
may adversely affect our ability to supply the product. Additionally, our manufacturing facilities, and those of our third party suppliers
may face other significant disruptions due to labor strikes, failure to reach acceptable agreement with labor unions, infringement of
intellectual property rights, vandalism, natural disaster, storm or other environmental damage, civil or political unrest, export or
import restrictions or other events. Were we not able to manufacture products at our manufacturing facilities or were our third party
suppliers unable to manufacture products at their facilities because of regulatory, business or any other reasons, the manufacture and
marketing of these products would be interrupted. This could have a material adverse impact on our business, results of operation, financial
condition, cash flows, competitive position and ability to operate.
Furthermore,
all of our manufacturing operations are conducted at the Northvale Facility and any delays or unanticipated expenses in connection with
the operation at the Northvale Facility, resulting in a significant disruption at this facility, even on a short-term basis, whether
due to, without limitation, an adverse quality or compliance observation, including a total or partial suspension of production and/or
distribution by regulatory authorities, an act of God, civil or political unrest, force majeure situation or other events could impair
our ability to produce and ship products on a timely basis, and could, among other consequences, subject us to exposure to claims from
customers. Any of these events could have a material adverse effect on our business, results of operations, financial condition, and
cash flows.
We
are dependent on a small number of customers, suppliers and other third parties for core business aspects.
We
are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely
affect our ability to produce products. The FDA requires identification of raw material suppliers in applications for approval of drug
products. If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could delay the manufacture of
the drug involved.
In
addition, some materials used in our products are currently available from only one supplier or a limited number of suppliers and there
is a risk of a sole approved supplier significantly raising prices. Please note that such an occurrence has taken place recently, wherein
significant price increases from a sole supplier greatly reduced profit margins, sales, and delayed product launches. These occurrences
were ultimately resolved by the successful FDA approval of an alternate supplier, with such approval process being lengthy and costly.
Further,
a significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special
risks of doing business abroad, including, without limitation:
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greater
possibility for disruption due to transportation or communication problems;
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the
relative instability of some foreign governments and economies;
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interim
price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or
fluctuations in currency exchange rates; and,
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uncertainty
regarding recourse to a dependable legal system for the enforcement of contracts and other rights.
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In
addition, patent laws in certain foreign jurisdictions (primarily, but not necessarily, in Europe) may make it increasingly difficult
to obtain raw materials for research and development prior to expiration of applicable United States or foreign patents. Any delay or
inability to obtain raw materials on a timely basis, or any significant price increases that cannot be passed on to customers, can materially
adversely affect our ability to produce products. This can materially adversely affect our business and operations.
We
also depend on a limited number of customers and any reduction, delay or cancellation of an order from these customers or the loss of
any of these customers could cause our revenue to decline. Each year we have had one or a few customers that have accounted for a large
percentage of our limited revenues therefore the termination of a contract with a customer may result in the loss of substantially all
of our revenues. We are constantly working to develop new relationships with existing or new customers, but despite these efforts we
may not, at the time that any of our current contracts expire, have other contracts in place generating similar or material revenue.
We have agreements with Lannett, Epic Pharma, Burel and Precision Dose for the sales and distribution of products that we manufacture.
We receive revenues to manufacture these products and also receive a profit split or royalties based on in-market sales of the products.
Since
a significant portion of our revenues is derived from a relatively few customers, any financial difficulties experienced by any one of
these customers, or any delay in receiving payments from any one of these customers, could have a material adverse effect on our business,
results of operations, financial condition, and cash flows.
Furthermore,
we are dependent on third parties to supply raw materials used in our products and to provide services for certain core aspects of our
business. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant
to various agreements with us could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
We
rely on third parties to supply raw material used in our products. In addition, we rely on third party suppliers, distributors and other
third party service providers to provide services for certain core aspects of our business, including, without limitation, manufacturing,
warehousing, freight and distribution, medical affairs services, regulatory compliance activities, sales and marketing, clinical studies,
lab services and other technical and financial services. Many such third-party suppliers and contractors are subject to requirements
proscribed by FDA, DEA or both. Our business and financial viability are dependent on the continued supply of goods, materials and services,
by these third parties, their regulatory compliance and on the strength, validity and terms of our various contracts and arrangements
with these third parties. Any interruption or failure by our third party suppliers, distributors and other third party service providers
to meet their obligations pursuant to the various agreements with us on schedule or in accordance terms and/or expectations, or any termination
by these third parties of their arrangements with us, which in each case, could be the result of one or more factors outside of our control,
could delay or prevent the development, approval, commercialization or manufacture of our products, result in non-compliance with applicable
laws and/or regulations, cause us to incur failure to supply penalties, disrupt our operations, increase the cost of our operations or
cause harm to our reputation in the industry, any or all of which could have a material adverse effect on our business, financial condition,
results of operations, cash flows and stock price. We may also be unsuccessful in resolving any underlying issues with such suppliers,
distributors or other third-party service providers or in replacing them within a reasonable time frame on commercially reasonable terms.
Furthermore,
we rely on third parties to conduct clinical trials and testing for our product candidates, and if they do not properly and successfully
perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory
approvals for our product candidates.
We
design the clinical trials for our product candidates but rely on contract research organizations and other third parties to assist us
in managing, monitoring and otherwise carrying out these trials, including, without limitation, with respect to site selection, contract
negotiation, analytical testing, and data management. We do not control these third parties and, as a result, delays may occur as a result
of the priorities and operations of these third parties differing from those which we may feel would be most optimal to the completion
of such activities in the most efficient manner possible.
Although
we rely on third parties to conduct our clinical trials and related activities, we are responsible for confirming that each of our clinical
trials is conducted in accordance with our general investigational plan and protocol. Moreover, the FDA and other relevant regulatory
agencies require us to comply with regulations and standards, commonly referred to as good clinical practices and good laboratory practices,
for conducting, recording, and reporting the results of clinical trials to ensure that the data and results are credible and accurate
and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities
and requirements. The FDA enforces good clinical practices and good laboratory practices through periodic inspections of trial sponsors,
principal investigators, and trial sites. If we, our contract research organizations, or our study sites fail to comply with applicable
good clinical practices and good laboratory practices, the clinical data generated in our clinical trials may be deemed unreliable and
the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that,
upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices and good laboratory practices.
In addition, our clinical trials must be conducted with product manufactured under the FDA’s current Good Manufacturing Practices,
or cGMP, regulations. Our failure or the failure of our contract manufacturers if any are involved in the process, to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If
third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they
obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements, or if they otherwise fail to comply
with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials
do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended,
or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates, which could
have a material adverse effect on our business, results of operations and financial condition.
We
may sell, withdraw or discontinue manufacture of certain products.
We
may discontinue the manufacture and distribution of certain existing products, which may adversely affect our business, results of operations,
financial condition, and cash flows. As part of regular evaluations of product performance, we may determine that it is in our best interest
to discontinue the manufacture and distribution of certain of our products. We cannot guarantee that we have correctly forecasted, or
will correctly forecast in the future, the appropriate products to discontinue or that a decision to discontinue various products is
prudent if market conditions change. In addition, there can be no assurances that the discontinuance of products will reduce operating
expense or no cause the incurrence of material charges associated with such a decision. Furthermore, the discontinuance of existing products,
entails various risks, including, without limitation, the ability to find a purchaser for such products, if there is a decision to sell
the product, as well as the risk that the purchase price obtained will not be equal to at least the book value of the net assets relating
to such products. Other risks associated with a product discontinuance, include, without limitation, managing the expectations of and
maintaining good relations with our customers who previously purchased a discontinued product from us, and the effects such would have
on future sales to these customers. We may also incur significant liabilities and costs associated with our product discontinuance.
In
addition, we may, from time to time, sell and/or withdraw approved ANDAs if we determine that the costs of maintaining such ANDAs is
excessive when compared to their actual current value and their perceived value and place in our strategic plans. For example, and without
limitation, during the twelve months ended March 31, 2020, we received new product approvals that would have resulted in us owning a
number of ANDAs that would have required us to self-identify as a large size ANDA holder, on the measurement date, as per the FDA’s
Generic Drug User Fee Amendment (“GDUFA”) program fee structure, as opposed to the medium size ANDA classification in effect
prior to these new ANDA approvals. Based on the GDUFA program fees in effect for the period October 1, 2020 through September 30, 2021,
the annual fee for large sized ANDA holders was approximately $0.9 million greater than the fee for medium sized ANDA holders. After
conducting a study of ANDAs held, with the GDUFA program fee levels being one of several relevant factors considered, we identified and
sold ANDAs relating to Methadone Tablets, Second Phendimetrazine Product, Hydromorphone Tablets, Oxycodone and Acetaminophen Tablets
and Hydrocodone and Acetaminophen Tablets.
Although
our expectations are to engage only in the sale or withdrawal of ANDAs if they advance or otherwise support our overall strategy, any
such ANDA sale by definition reduces the size and scope of our business, with a direct correlation to opportunities with respect to certain
markets, products or therapeutic categories.
All
of the foregoing could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability
to operate.
We
may fail to successfully identify, develop and commercialize new products.
Elite’s
product pipeline, including the paused development of its abuse deterrent opioid products, are in various stages of development. Prior
to commercialization, product development must be completed that could include scale-up, clinical studies, regulatory filing, regulatory
review, approval by the FDA, and/or other development steps. Development is subject to risks. We cannot assure you that development will
be successful, or that during development unexpected delays might occur or additional costs might be incurred.
In
order to obtain FDA approval to market a new drug product, we must demonstrate proof of safety and effectiveness in humans. To meet these
requirements, we must conduct extensive preclinical testing and “adequate and well-controlled” clinical trials. Conducting
clinical trials is a lengthy, time-consuming, and expensive process. Completion of necessary clinical trials may take several years or
more. Delays associated with products for which we are directly conducting preclinical or clinical trials may cause us to incur additional
operating expenses. The commencement and rate of completion of clinical trials may be delayed by many factors, including, without limitation,
for example:
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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.
Our
ability to sustain current operations, engender business growth, achieve current and future revenues and profitability, significantly
depends on our ability to successfully identify, develop, obtain regulatory approval, commercialize and market new pharmaceutical products,
including, without limitation, our own products as well as those that may be developed in partnership with other entities, such as those
that were previously developed with SunGen pursuant to a now terminated product development agreement. As a result, we must continually
develop, test and manufacture new products, which must meet regulatory standards to receive requisite marketing authorizations.
The
process of developing and obtaining regulatory approvals for new products is time-consuming, costly and inherently unpredictable. There
are direct, indirect, known and unknown risks inherent in the development of pharmaceuticals, including, without limitation, products
which initially show promise in preliminary pharmacological or marketing studies, but fail to yield the positive results consistent with
initial indications. Products we are currently developing may not receive the regulatory approvals or clearances necessary for us to
market them and, if approved, we may be unable to successfully commercialize them on a timely basis or at all, or if commercialized,
revenues and profits achieved from the sale of such products might not reach levels that provide sufficient return on those costs incurred
during the commercialization process.
The
successful commercialization of a product is subject to a number of factors, including:
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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 SequestOxTM and certain generics are focused on technically difficult-to-formulate
products and/or products that require advanced manufacturing technology. Typically, expenses related to research, development, and regulatory
approval of compounds for SequestOxTM, which is a branded pharmaceutical product are significantly greater than those expenses
associated with generic products. Expanded research and development efforts are required, resulting in increased research expenses. Because
of the inherent risk associated with research and development efforts in the healthcare industry, particularly with respect to new drugs,
our research and development expenditures may not result in the successful regulatory approval and introduction of new pharmaceutical
products and failure in the development of any new product can occur at any point in the process, including late in the process after
substantial investment. Also, after we submit a regulatory application, the relevant governmental health authority may require that we
conduct additional studies, including, for example, studies to assess the product’s interaction with alcohol. As a result, we may
be unable to reasonably predict the total research and development costs to develop a particular product and there is a significant risk
that the funds we invest in research and development will not generate financial returns. In addition, our operating results and financial
condition may fluctuate as the amount we spend to research and develop, commercialize, acquire or license new products, technologies
and businesses changes. Much of the preceding occurred with the development of SequestOxTM, which has not received marketing
approval from the FDA, for which continued development has been paused and with material adverse effects on our business, results of
operations, financial condition, cash flows and ability to operate resulting in the past, as well as the risk remaining for the future.
Because
of these risks, our research and development efforts may not result in any commercially viable products. Any delay in, or termination
of, our preclinical or clinical trials will delay the filing of our drug applications with the FDA and, ultimately, our ability to commercialize
our product candidates and generate product revenues. If a significant portion of these development efforts are not successfully completed,
required regulatory approvals are not obtained, or any approved products are not commercially successful, our business, financial condition,
and results of operations may be materially harmed.
Our
operations could be disrupted by failure of our information systems or cyber-attacks.
Our
operations could be disrupted if our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are
subject to cyber-attacks. Our business depends on the efficient and uninterrupted operation of our computer and communications systems
and networks, hardware and software systems and our other information technology. We collect and maintain information, which includes
confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. Data
maintained in digital form is subject to risk of cyber-attacks, which are increasing in frequency and sophistication. Cyber-attacks could
include the deployment of harmful malware, viruses, worms, and other means to affect service reliability and threaten data confidentiality,
integrity and availability. Despite our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a
future data compromise cannot be eliminated entirely, and risks associated with intrusion, tampering, and theft remain. In addition,
we do not have insurance coverage with respect to system failures or cyber- attacks. A failure of our systems, or an inability to successfully
expand the capacity of these systems, or an inability to successfully integrate new technologies into our existing systems could have
a material adverse effect on our business, results of operations, financial condition, and cash flows.
We
also have outsourced significant elements of our information technology infrastructure to third parties, some of which may be outside
the U.S. Accordingly, significant elements of our information technology infrastructure, require our management of multiple independent
vendor relationships with third parties who may or could have access to our confidential information. The size and complexity of our
information technology systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable
to service interruptions. The size and complexity of our and our vendors’ systems and the large amounts of confidential information
that is present on them also makes them potentially vulnerable to security breaches from inadvertent or intentional actions by our employees,
partners, or vendors, or from attacks by malicious third parties.
The
Company and its vendors’ sophisticated information technology operations are spread across multiple, sometimes inconsistent, platforms,
which pose difficulties in maintaining data integrity across systems. The ever-increasing use and evolution of technology, including
cloud-based computing, creates opportunities for the unintentional or improper dissemination or destruction of confidential information
stored in the Company’s systems.
Any
breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse
of trade secrets, proprietary information or other confidential information, whether as a result of theft, hacking, fraud, trickery or
other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology or
information and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure of confidential
information could result in financial, legal, business and reputational harm to our company and could have a material adverse effect
on our business, financial condition, results of operations, cash flows and stock price.
Delays
in product development may result in failure to achieve adequate return on investment.
The
time necessary to develop generic drugs may adversely affect whether, and the extent to which, we receive a return on our capital. The
development process for branded and generic products, including, without limitation, drug formulation, testing, and FDA review and approval,
often takes three or more years. This process requires that we expend considerable capital to pursue activities that do not yield an
immediate or near-term return. Also, because of the significant time necessary to develop a product, the actual market for a product
at the time it is available for sale may be significantly less than the originally projected market for the product. If this were to
occur, our potential return on our investment in developing the product, if approved for marketing by the FDA, would be adversely affected
and we may never receive a return on our investment in the product. It is also possible for the manufacturer of the brand-name product
for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription market
to the OTC market. If this were to occur, we would be prohibited from marketing our product other than as an OTC drug, in which case
revenues could be substantially less than we anticipated.
There
are also risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization
of our own branded products. With respect to our branded products which do not qualify for the FDA’s abbreviated application procedures,
we must demonstrate through clinical trials that these products are safe and effective for use. We have only limited experience in conducting
and supervising clinical trials. The process of completing clinical trials and preparing an NDA may take several years and requires substantial
resources. Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA grants approval, we
cannot predict the timing of any approval. There are substantial filing fees for NDAs, often in excess of $1 million in addition to the
cost of product development and clinical trials, that are not refundable if FDA approval is not obtained.
There
are a number of risks and uncertainties associated with clinical trials. The results of clinical trials may not be indicative of results
that would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced stages of disease
and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may not be
related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects
experienced by the patients may cause delay of approval or limit the profile of an approved product. Moreover, our clinical trials may
not demonstrate sufficient safety and efficacy to obtain approval from the FDA or foreign regulatory authorities. The FDA or foreign
regulatory authorities may not agree with our assessment of the clinical data or they may interpret it differently. Such regulatory authorities
may require additional or expanded clinical trials. Even if the FDA or foreign regulatory authorities approve certain products developed
by us, there is no assurance that such regulatory authorities will not subject marketing of such products to certain limits on indicated
use.
Failure
can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive
of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired
safety or efficacy despite having progressed successfully through earlier clinical testing.
Completion
of clinical trials for our product candidates may be delayed or halted for the reasons noted above in addition to many other reasons,
including, without limitation:
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Delays
in patient enrolment, and variability in the number and types of patients available for clinical trials;
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Regulators
or institutional review boards may not allow us to commence or continue a clinical trial;
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Our
inability, or the inability of our partners, if any, to manufacture or obtain from third parties those materials required to complete
clinical trials;
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Delays
or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial
sites;
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Risks
associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product
candidate is effective;
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Difficulty
in maintaining contact with patients after treatment commences, resulting in incomplete data
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Poor
effectiveness of product candidates during clinical trials;
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Safety
issues, including adverse events associated with product candidates;
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Failure
of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons;
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Governmental
or regulatory delays or changes in regulatory requirements, policy, and guidelines; and,
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Varying
interpretation of data by the FDA or other relevant regulatory authorities.
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In
addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development
which may delay the enrolment in or initiation of our clinical trials.
The
FDA or other relevant regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in
additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our
product candidates would prevent or delay the commercialization of our product candidates. We cannot assure that our expenses related
to clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or failure
in the development and commercialization of our own branded products could have a material adverse effect on our business, results of
operations and financial condition.
Our
business is dependent on market perceptions, social and political pressures.
Market
acceptance of our products among physicians, patients, health care payors and the medical community, is a key component of commercial
success and if such is not achieved, our business will be adversely affected. The degree of market acceptance of any of our approved
product candidates among physicians, patients, health care payors and the medical community will depend on a number of factors, including,
without limitation:
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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 also experience downward pressure on the price of our products due to social or political pressure to lower the cost of drugs, which
would reduce our revenue and future profitability. Recent events have resulted in increased public and governmental scrutiny of the cost
of drugs, especially in connection with price increases following companies’ acquisition of the rights to certain drug products.
In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information about drug pricing practices.
In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to drug-price increases and pricing
practices. Our revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory
proposals that limit our ability to increase the prices of our products which could have a material adverse effect on our business, growth
prospects, financial condition, results of operations, cash flow and stock price.
In
addition, in September 2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to justify
price increases of more than 10% in a 12-month period, and a large number of individual States have introduced legislation aimed at drug
pricing regulation, transparency or both. While this proposed legislation has not been enacted into law to date, our revenue and future
profitability could be negatively affected by the passage of this law or similar federal or state legislation. Furthermore, pressure
from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result
in downward pressure on the prices of our products in the future, which could have a material adverse effect on our business, growth
prospects, financial condition, results of operations, cash flow and stock price.
Furthermore,
public concern over the abuse of opioid medications, including increased legal and regulatory action, could also negatively affect our
business. While Elite has de-emphasized its programs with respect to opioids and will continue to focus on products other than opioids,
certain governmental and regulatory agencies, as well as state and local jurisdictions, are focused on the abuse of opioid medications
in the United States. State and local governmental agencies may investigate us as a manufacturer and/or distributor of medicines containing
opioids or in conjunction with their investigation of other pharmaceutical wholesale distributors, and others in the supply chain that
have a direct or indirect connection to our operations in relation to the distribution of opioid medications. In addition, multiple lawsuits
have been filed against other pharmaceutical manufacturers and distributors alleging, among other claims, that they failed to provide
effective controls and procedures to guard against the diversion of controlled substances, acted negligently by distributing controlled
substances to pharmacies that serve individuals who abuse controlled substances, and failed to report suspicious orders of controlled
substances in accordance with regulations. Additional governmental entities have indicated an intent to sue these other manufacturers
and distributors. While no such actions have been taken against us, the immediate effect on the Company has been an inability to commercialize
and market three opioid products approved during fiscal years prior to the twelve months ended March 31, 2021 and a cessation of orders
for another two other opioid products that had been marketed by our marketing partners. During the year ended March 31, 2020, we disposed
of four approved ANDA’s for opioid products. As of March 31, 2021, we continue to hold one approved ANDA for an opioid product
that, while approved by the FDA, has not been launched commercially. Further, defense against any such opioid related lawsuits could
be cost-prohibitive resulting in an adverse material effect on our business, financial condition, results of operations, cash flows and
stock price. Similar allegations made against us, even without litigation, could also negatively affect our business in various ways,
including through increased costs and harm to our reputation. In addition, an adverse resolution of any lawsuit or investigation could
also have a material adverse effect on our business, results of operations, cash flows and stock price.
Market
perceptions or our business are important to us, especially market perceptions of the safety and quality of our products. If any of our
products or similar products that other companies distribute are subject to market withdrawal, recall, or are proven to be, or are claimed
to be, harmful to consumers, then this could have a material adverse effect on our business, results of operations, financial condition,
and cash flows. Furthermore, due to the importance of market perceptions, negative publicity associated with product quality, illness
or other adverse effects resulting from, or perceived to be resulting from, our products, or similar products made by other companies,
could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Any
or all of the above could result in a material adverse effect on our business, financial condition, results of operations, cash flow,
ability to operate and stock price.
Unstable
economic conditions may adversely affect our business.
The
global economy has undergone a period of significant volatility, especially during a global pandemic, such as the COVID-19 pandemic,
which has led to diminished credit availability, declines in consumer confidence, and increases in unemployment rates. There remains
caution about the stability of the U.S. economy, and we cannot assure that further deterioration in the financial markets will not occur.
These economic conditions have resulted in, and could lead to further, reduced consumer spending related to healthcare in general and
pharmaceutical products in particular.
In
addition, we have exposure to many different industries and counterparties, including our partners under our alliance and collaboration
agreements, suppliers of raw chemical materials, drug wholesalers and other customers that may be affected by an unstable economic environment.
Any economic instability may affect these parties’ ability to fulfil their respective contractual obligations to us, cause them
to limit or place burdensome conditions upon future transactions with us or drive us and our competitors to decrease prices, each of
which could materially and adversely affect our business, results of operations and financial condition, cash flows and stock price.
We
depend on qualified scientific and technical personnel and our ability to attract and retain such personnel.
Because
of the specialized scientific nature of our business, we are highly dependent upon our ability to continue to attract and retain qualified
scientific and technical personnel. We are not aware of any pending, significant losses of scientific or technical personnel. Loss of
the services of, or failure to recruit, key scientific and technical personnel, however, would be significantly detrimental to our product-development
programs. As a result of our small size and limited financial and other resources, it may be difficult for us to attract and retain qualified
officers and qualified scientific and technical personnel.
In
addition, marketing of our branded product, SequestOx™ will require much greater use of a direct sales force compared to marketing
of our generic products, should we reinstate development and achieve commercialization of this product. Our ability to realize significant
revenues from marketing and sales activities depends on our ability or the ability of our partners to attract and retain qualified sales
personnel. Competition for qualified sales personnel is intense. Any failure to attract or retain qualified sales personnel could negatively
impact our sales revenue and have a material adverse effect on our business, results of operations, financial condition, cash flows and
stock price.
We
have entered into employment agreements with our executive officers and certain other key employees. We do not maintain “Key
Man” life insurance on any executives.
Unsuccessful
collaboration or licensing arrangements could limit revenues and product development.
We
have entered into several collaborations and licensing arrangements for the development of products. However, there can be no assurance
that any of these agreements will result in FDA approvals, or that we will be able to market any such finished products at a profit.
Collaboration and licensing arrangements pose the following risks:
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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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Any
or all of the above could result in a material adverse effect on our business, financial condition, results of operations, cash flow,
ability to operate and stock price.
Financial
and Liquidity Risks
We
have a relatively limited operating history and our operating results could fluctuate significantly.
Our
revenues and operating results may vary significantly from year-to-year and quarter-to-quarter as well as in comparison to the corresponding
quarter of the preceding year. Variations may result from one or more factors, including, without limitation:
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Effects
of a global pandemic or similar situation, including, without limitation the COVID-19 pandemic that emerged in 2020, with such effects
to include actions taken by the Company, its suppliers, partners, competitors, other entities involved in the industry, other entities,
and any laws, regulations, executive orders or other governmental/regulatory actions taken in relation to such a pandemic or similar
circumstance;
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Timing
of approval of applications filed with the FDA;
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Timing
of process validation, product launches and market acceptance of products launched;
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Changes
in the amounts spent to research, develop, acquire, license or promote new and existing products;
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Results
of clinical trial programs;
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Serious
or unexpected health or safety concerns with our products, brand products which we have genericized, products currently under development
or any other product candidates;
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Introduction
of new products by others that render our products obsolete or non-competitive;
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The
ability to maintain selling prices and gross margin on our products;
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Mix
of product manufactured and sold due to each product having different gross margins;
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The
cost and outcome of litigation, in the event that such occurs in relation to, without limitation, intellectual property issues, regulatory
or other matters;
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The
ability to comply with complex and numerous governmental regulations and regulatory authorities which oversee and regulate many aspects
of our business and operations;
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Changes
in coverage and reimbursement policies of health plans and other health insurers, including changes to Medicare, Medicaid, and similar
state programs, especially in relation to those products that are currently manufactured, under development or identified for future
development by the Company;
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Increases
in the cost of raw materials contained within our products;
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Manufacturing
and supply interruptions, including product rejections or recalls due to failure to comply with manufacturing specifications;
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Timing
of revenue recognition relating to our licensing and other agreements;
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The
ability to avoid infringing the intellectual property of others;
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The
ability to protect our intellectual property from being acquired by other entities;
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Our
ability to manage growth and integrate acquired products and assets successfully; and
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The
addition or loss of customers.
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A
negative variation in one, many or all of the above factors could, may or will have a material adverse effect on Elite’s business,
results of operations, financial condition, and cash flow and ability to operate in the future, depending on the nature and magnitude
of the variation(s).
In
addition, although we have been in operation since 1990, we have a relatively short operating history, have only achieved profitability
for the first time during the fiscal year ended March 31, 2021 and have limited financial data upon which you may evaluate our business
and prospects. There can be no assurances of our ability to sustain current profitability and in certain years prior to the year ended
March 31, 2021, the auditor’s opinion on our financials were qualified with respect to there being substantial doubt as to the
Company’s ability to continue as a going concern due to continued losses not being sufficiently offset by operating revenues. A
failure to generate sufficient revenues to offset related costs of operations will have a material adverse effect on our business, results
of operations, financial condition, cash flow and ability to operate.
Furthermore, our business
model is likely to continue to evolve as we attempt to expand our product offerings and our presence in the generic pharmaceutical market.
As a result, our potential for future profitability must be considered in view of the risks, uncertainties, expenses, and difficulties
frequently encountered by companies that are attempting to move into new markets and continuing to innovate with new and unproven technologies
and there can be no assurances of continued profitability subsequent to the current fiscal year. Some of these risks relate to our potential
inability to:
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develop new products;
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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; and,
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Sustain operations during a global pandemic or similar situation, such
as the COVID-19 global pandemic first identified in 2020.
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If we do not effectively
address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability or successfully develop
any products, resulting in a material adverse effect on Elite’s business, results of operations, financial condition, and cash
flow and ability to operate in the future.
Our ability to fund operations is uncertain
and we may require additional financing to meet objectives.
Our ability to fund our operations,
maintain liquidity and meet our financing obligations is reliant on our operations, which are subject to significant risks and uncertainties.
We rely on cash generated by operations as well as access to financial markets, such as the equity line with Lincoln Park and equipment
financings, to fund our commercial, product development and other operations, maintain liquidity and meet our financial obligations.
Amounts available under the equity line with Lincoln Park have a strong and direct correlation to the Company’s publicly traded
price per share and volumes. There can be no assurances of our traded price per share and volumes being at sufficient levels to provide
adequate funding from the equity line with Lincoln Park. In addition, there can be no assurances of our ability to secure equipment financing,
resulting in an increased risk of our inability to achieve critical or necessary facility upgrades.
Our operations are also subject
to many significant risks and uncertainties, as described, without limitation, in this “Risk Factors” section, including,
without limitation, those risks related to the effects of a global pandemic such as or similar to the COVID-19 pandemic, competition
in the markets in which we operate, litigation risks, government investigations, including those related to our sale, marketing and/or
distribution of prescription opioid medications in prior periods, and others. Any negative development or outcome in connection with
any or all of these risks and uncertainties could result in significant consequences, including, without limitation, one or more of the
following:
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The dedication of a substantial portion of our cash flows from operations
to the payment of legal or related expenses, resulting in these same funds being unavailable for other purposes, including, without
limitation, debt service, operations, capital expenditures, product development and future business opportunities;
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A limitation in our ability to adjust to changing market conditions,
causing us to be more vulnerable to periods of negative or impaired growth in the general economy or in our business, resulting the
company being put at a competitive disadvantage as a result of a decreased or unavailable ability to engage in capital spending and
take all other actions that would otherwise be required to ensure growth and competitiveness;
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A limitation in our ability to attract and retain key personnel;
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A decrement in our debt service and compliance obligations related
to certain of our outstanding debt obligations, exposing us to events of default and reduced credit ratings, which in turn lead to
increased capital costs and potential unavailability of capital; and,
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An overall inability to fund our operations and liquidity needs.
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The occurrence or possibility
of one or more of these or similar events may cause us to pursue one or more significant corporate transactions as well as other remedial
measures, including refinancing all or part of our then-existing indebtedness, selling assets, reducing, delaying or eliminating capital
expenditures, seeking to raise additional capital or pursuing internal reorganizations, restructuring activities, strategic alliances,
or cost-saving initiatives. Any refinancing of our substantial indebtedness could be at significantly higher interest rates, which will
depend on both the conditions of the market as well as the Company’s finances at such time, and may also require our compliance
with covenants that could be more onerous than current, which in turn could result in the further restriction of our business operations.
Any refinancing may also increase the amount of our secured indebtedness. In addition, the terms of existing or future debt agreements
may restrict us from adopting any of the alternatives. Internal reorganizations, restructuring activities, asset sales and cost saving
initiatives may also be complex and could entail significant costs and charges or could otherwise negatively impact shareholder value.
There can also be no assurance that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all, or
that even if accomplished, that the intended results and benefits would be realized.
We most likely will require additional
financing to meet our business objectives.
We also will likely need
additional funding to accomplish our plans to conduct the clinical development and commercialization of a range of multiple abuse resistant
opioids or initiate, continue or complete the development of additional generic products already identified for development or currently
in development.
As of March 31, 2021, we
had cash on hand of approximately $3.2 million and a working capital surplus of $6.8 million, and, for the fiscal year ended March 31,
2021, we had profits from operations totaling $2.5 million, net other income totaling $3.0 million and net income of $5.5 million.
On July 8, 2020, we entered
into another purchase agreement (the “2020 LPC Purchase Agreement”), together with a registration rights agreement
(the “2020 LPC Registration Rights Agreement”), with Lincoln Park. Under the terms and subject to the conditions of
the 2020 LPC Purchase Agreement, we have the right to sell to and Lincoln Park is obligated to purchase up to $25 million in shares of
our common stock, subject to certain limitations, from time to time, over the 36-month period commencing on July 27, 2020 and expiring
on August 1, 2023.
While growth in our current
generic product line, consisting of Phentermine Tablets, Phentermine Capsules, Phendimetrazine Tablets, Naltrexone Tablets, Isradipine
Capsules, Trimipramine Capsules, Amphetamine IR Tablets, Amphetamine ER Capsules, Dantrolene Capsules, and Loxapine Capsules combined
with manufacturing, profit split and royalty revenues earned pursuant to the Lannett Alliance, the Precision Dose License Agreement,
the Burel License Agreement and the Epic License Agreement, and successful commercialization of other products in our product development
pipeline, may lead to sustained profitability, there can be no assurances of such. Furthermore, there can be no assurances of the continuation
revenues being earned from the current generic product line, no assurances of Elite’s successful commercialization of other products
in our development pipeline, and no assurances of Elite’s ability to continue as a going concern. In addition, there can be no
assurances of Elite being able to raise additional funds in a timely manner, on acceptable terms, if needed to support commercial operations
resulting in a material detrimental effect on Elite’s ability to become profitable and accordingly being a material factor to the
detriment of Elite’s ability to continue as a going concern as well as having a material adverse effect on our business, results
of operations, financial condition, and cash flow and ability to operate in the future.
To sustain operations and
meet our business objectives we must be able to commercialize our products and other products or pipeline opportunities. If we are unable
to timely obtain additional financing, if necessary, and/or we are unable to timely generate greater revenues from our operations, we
will be required to reduce and, possibly, cease operations and liquidate our assets. No assurance can be given that we will be able to
commercialize the new opportunities or consummate such other financing or strategic alternative in the time necessary to avoid the cessation
of our operations and liquidation of our assets.
Furthermore, the capital
and credit markets have experienced extreme volatility. Disruptions in the credit markets make it harder and more expensive to obtain
funding. In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional
financing will depend on a variety of factors such as market conditions and the general availability of credit. Future debt financing
may not be available to us when required or may not be available on acceptable terms, and as a result we may be unable to grow our business,
take advantage of business opportunities, or respond to competitive pressures.
Please also see the risk
factor titled “Global pandemic and natural disasters”.
We have substantial indebtedness which
may adversely affect our financial condition.
We currently have substantial
indebtedness. Total liabilities as of March 31, 2021, were $10.1 million, with such amount including, without limitation, $2.4 million
in various loans, leases and bonds payable, $2.3 million in derivative liabilities, and $5.3 million in current payables and accruals.
The consequences of this substantial indebtedness could include:
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An increase in our vulnerability to general economic and industry conditions,
including recessions, depressions, effects of global pandemics such as the COVID-19 pandemic, significant inflation and other financial
market volatility;
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Exposure to the risk of increased interest rates;
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The Company being required to dedicate a substantial portion of cash
flow from operations for debt service and the attendant result of a diminished ability to fund working capital, capital expenditures
and other expenses;
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A limitation in our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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Our being at a competitive disadvantage as compared to competitors
with less indebtedness; and
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A limitation in our ability to borrow additional funds that may be
needed to operate and expand our business.
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In addition, a notice of
default was issued by the New Jersey Economic Development Authority in relation to prior obligations of our tax-exempt bonds. Although
we are current in our payments under these bonds, if the principal balances due under these bonds are accelerated pursuant to the notice
of default, our ability to operate in the future will be materially and adversely affected.
For more information on the
NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; NJEDA Bonds”.
There is a risk impairment of significant
intangible assets on our balance sheet.
We have significant intangible
assets on our balance sheet. Consequently, potential impairment of intangible assets may have an adverse material effect on our profitability.
Intangible assets represent
a significant portion of our assets. As of March 31, 2021, intangible assets were approximately $6.6 million, or approximately 25% of
our assets.
Generally accepted accounting
principles in the United States (“GAAP”) requires that intangible assets be subject to regular impairment analysis
to determine if changes in circumstances indicate that the value of the asset as recorded may not be recoverable. Such events or changes
in circumstances are an inherent risk in the pharmaceutical industry and often cannot be predicted. However, should a change in circumstance
occur, requiring the impairment of an intangible asset, the result of such an impairment may have an adverse material effect on our business,
financial condition, results of operations, cash flows and stock price.
GAAP requires estimates, judgements and
assumptions which inherently contain uncertainties.
There are inherent uncertainties
involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any future
changes in estimates, judgments and assumptions used or necessary revisions to prior estimates, judgments or assumptions could lead to
a restatement of our results.
The consolidated financial
statements included in this Annual Report on Form 10-K are prepared in accordance with GAAP. This involves making estimates, judgments
and assumptions that affect reported amounts of assets (including intangible assets), liabilities, mezzanine equity, stockholders’
equity, operating revenues, costs of sales, operating expenses, other income, and other expenses. Estimates, judgments, and assumptions
are inherently subject to change in the future and any necessary revisions to prior estimates, judgments or assumptions could lead to
a restatement. Any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible
assets), liabilities, mezzanine equity, stockholders’ equity, operating revenues, costs of sales, operating expenses, other income
and other expenses.
Legal and Regulatory Risks
The pharmaceutical industry is heavily
regulated which creates uncertainty and substantial compliance costs.
The pharmaceutical industry
is heavily regulated, which creates uncertainty about our ability to bring new products to market and imposes substantial compliance
costs on our business in relation to product development as well as commercial operations.
Governmental authorities
such as the FDA impose substantial requirements on the development, manufacture, holding, labelling, marketing, advertising, promotion,
distribution and sale of therapeutic pharmaceutical products through lengthy and detailed laboratory and clinical testing and other costly
and time-consuming procedures. In addition, before obtaining regulatory approvals for certain generic products, we must conduct limited
bioequivalence studies and other research to show comparability to the branded products. A failure to obtain satisfactory results in
required pre-marketing trials may prevent us from obtaining required regulatory approvals. The FDA may also require companies to conduct
post-approval studies and post-approval surveillance regarding their drug products and to report adverse events.
Before obtaining regulatory
approvals for the sale of any of our new product candidates, we must demonstrate through preclinical studies and clinical trials that
the product is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness
of a product. Likewise, we may not be able to demonstrate through clinical trials that a product candidate’s therapeutic benefits
outweigh its risks. Even promising results from preclinical and early clinical studies do not always accurately predict results in later,
large scale trials. A failure to demonstrate safety and efficacy could or would result in our failure to obtain regulatory approvals.
Clinical trials can be delayed for reasons outside of our control, which can lead to increased development costs and delays in regulatory
approval. For example, due to competition to enroll patients in clinical trials, there have been instances of delays in clinical development
of our products in the past, as a result of patients not enrolling in clinical trials at the rate expected, or patients dropping out
of trials after enrolling, at rates that were higher than expected. In addition, we rely on collaboration partners and third-party subject
matter experts that may recommend changes in trial protocol and design enhancements that are put into effect, or encounter clinical trial
compliance-related issues, which may also delay clinical trials. Product supplies may be delayed or be insufficient to treat the patients
participating in the clinical trials, or manufacturers or suppliers may not meet the requirements of the FDA or foreign regulatory authorities,
such as those relating to Current Good Manufacturing Practices. We also may experience delays in obtaining, or we may not obtain, required
initial and continuing approval of our clinical trials from institutional review boards. We cannot confirm to you that we will not experience
delays or undesired results in these or any other of our clinical trials.
We cannot confirm to you
that the FDA will approve, clear for marketing or certify any products developed by us or that such approval will not subject the marketing
of our products to certain limits on indicated use. The FDA may not agree with our assessment of the clinical data or they may interpret
it differently. Such regulatory authorities may require additional or expanded clinical trials. Any limitation on use imposed by the
FDA or delay in or failure to obtain FDA approvals or clearances of products developed by us would adversely affect the marketing of
these products and our ability to generate product revenue, which would adversely affect our financial condition and results of operations.
In addition, with respect
specifically to pharmaceutical products, the submission of a New Drug Application (NDA), such as SequestOx™, or ANDA to the FDA
with supporting clinical safety and efficacy data, for example, does not guarantee that the FDA will grant approval to market the product.
Meeting the FDA’s regulatory requirements to obtain approval to market a drug product, which varies substantially based on the
type, complexity and novelty of the pharmaceutical product, typically takes years and is subject to uncertainty.
Additional delays may result
if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. Although the FDA is not
required to follow the recommendations of its Advisory Committees, it usually does. A negative Advisory Committee meeting could signal
a lower likelihood of approval, although the FDA may still end up approving our application. Regardless of an Advisory Committee meeting
outcome or the FDA’s final approval decision, public presentation of our data may shed positive or negative light on our application.
Some drugs are available
in the United States that are not the subject of an FDA-approved NDA. In 2011, the FDA’s Center for Drug Evaluation and Research
(“CDER”) Office of Compliance modified its enforcement policy with regard to the marketing of such “unapproved”
marketed drugs. Under CDER’s revised guidance, the FDA encourages manufacturers to obtain NDA approvals for such drugs by requiring
unapproved versions to be removed from the market after an approved version has been introduced, subject to a grace period at the FDA’s
discretion. This grace period is intended to allow an orderly transition of supply to the market and to mitigate any potential related
drug shortage. Depending on the length of the grace period and the time it takes for subsequent applications to be approved, this may
result in a period of de facto market exclusivity to the first manufacturer that has obtained an approved NDA for the previously unapproved
marketed drug. We may seek FDA approval for certain unapproved marketed drug products through the 505(b)(2) regulatory pathway. Even
if we receive approval for an NDA under Section 505(b)(2), the FDA may not take timely enforcement action against companies marketing
unapproved versions of the drug; therefore, we cannot be sure that that we will receive the benefit of any de facto exclusive marketing
period or that we will fully recoup the expenses incurred to obtain an approval. In addition, certain competitors and others have objected
to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged,
this could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
Moreover, even if our product
candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products
may be marketed or to other conditions of approval or may contain requirements for costly post-marketing testing and surveillance to
monitor the safety or efficacy of the products.
The ANDA approval process
for a new product varies in time, is difficult to estimate and can vary significantly, from as little as 10 months from the date of application,
to several years or more. Furthermore, ANDA approvals, if granted, may not include all indications for which the Company may seek to
market each product.
Further, once a product is
approved or cleared for marketing, failure to comply with applicable regulatory requirements can result in, among other things, suspensions
or withdrawals of approvals or clearances, seizures or recalls of products, injunctions against the manufacture, holding, distribution,
marketing and sale of a product, and civil and criminal sanctions. Furthermore, changes in existing regulations or the adoption of new
regulations could prevent us from obtaining, or affect the timing of, future regulatory approvals or clearances. Meeting regulatory requirements
and evolving government standards may delay marketing of our new products for a considerable period of time, impose costly procedures
upon our activities and result in a competitive advantage to larger companies that compete against us.
Even if regulatory approval
is obtained for a particular product candidate, the FDA and foreign regulatory authorities may, nevertheless, impose significant restrictions
on the indicated uses or marketing of such products, or impose ongoing requirements for post-approval studies. Following any regulatory
approval of our product candidates, we will be subject to continuing regulatory obligations, such as safety reporting requirements, and
additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products. If we become aware
of previously unknown problems with any of our product candidates here or overseas or at our contract manufacturers’ facilities,
a regulatory agency may impose restrictions on our products, our contract manufacturers or on us, including requiring us to reformulate
our products, conduct additional clinical trials, make changes in the labelling of our products, implement changes to or obtain re-approvals
of our contract manufacturers’ facilities or withdraw the product from the market. In addition, we may experience a significant
drop in the sales of the affected products, our reputation in the marketplace may suffer and we may become the target of lawsuits, including
class action suits. Moreover, if we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or
withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. Any of these
events could harm or prevent sales of the affected products or could substantially increase the costs and expenses of commercializing
and marketing these products.
In March 2011, the FDA issued
a directive removing from the market approximately 500 cough/cold and allergy products, including our Lodrane® extended release product
line. At that time, the Lodrane® extended release products constituted approximately 97% of our revenues.
Based on scientific developments,
post-market experience, or other legislative or regulatory changes, the current FDA standards of review for approving new pharmaceutical
products, or new indications or uses for approved or cleared products, are sometimes more stringent than those that were applied in the
past.
Some new or evolving FDA
review standards or conditions for approval or clearance were not applied to many established products currently on the market, including
certain opioid products. As a result, the FDA does not have as extensive safety databases on these products as on some products developed
more recently. Accordingly, we believe the FDA has expressed an intention to develop such databases for certain of these products, including
many opioids. In particular, the FDA has expressed interest in specific chemical structures that may be present as impurities in a number
of opioid narcotic active pharmaceutical ingredients, such as oxycodone, which based on certain structural characteristics and laboratory
tests may indicate the potential for having mutagenic effects. FDA has required, and may continue to require, more stringent controls
of the levels of these impurities in drug products for approval.
Also, the FDA may require
labelling revisions, formulation, or manufacturing changes and/or product modifications for new or existing products containing such
impurities. The FDA’s more stringent requirements, together with any additional testing or remedial measures that may be necessary,
could result in increased costs for, or delays in, obtaining approval for certain of our products in development. Although we do not
believe that the FDA would seek to remove a currently marketed product from the market unless such mutagenic effects are believed to
indicate a significant risk to patient health, we cannot make any such assurance.
In May of 2016, an FDA advisory
panel recommended mandatory training of all physicians who prescribe opioids on the risks of prescription opioids. In 2016, the CDC also
issued a guideline for prescribing opioids for chronic pain that provides recommendations for primary care clinicians who are prescribing
opioids for chronic pain outside of active cancer treatment, palliative care, and end-of-life care. In addition, state health departments
and boards of pharmacy have authority to regulate distribution and may modify their regulations with respect to prescription narcotics
in an attempt to curb abuse. In either case, any such new regulations or requirements may be difficult and expensive for us to comply
with, may delay our introduction of new products, may adversely affect our total revenues, and may have a material adverse effect on
our business, results of operations, financial condition and cash flows.
The FDA has the authority
to require companies to undertake additional post-approval studies to assess known or signaled safety risks and to make any labelling
changes to address those risks. The FDA also can require companies to formulate approved Risk Evaluation and Mitigation Strategies (REMS)
to confirm a drug’s benefits outweigh its risks.
The FDA’s exercise
of its authority under the FFDCA could result in delays or increased costs during product development, clinical trials and regulatory
review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved
products. Foreign regulatory agencies often have similar authority and may impose comparable requirements and costs. Post-marketing studies
and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our products. Furthermore,
the discovery of significant safety or efficacy concerns or problems with a product in the same therapeutic class as one of our products
that implicate or appear to implicate the entire class of products could have an adverse effect on sales of our product or, in some cases,
result in product withdrawals. The FDA has continuing authority over the approval of an NDA or ANDA and may withdraw approval if, among
other reasons, post-marketing clinical or other experience, tests, or data show that a drug is unsafe for use under the conditions upon
which it was approved, or if FDA determines that there is a lack of substantial evidence of the drug’s efficacy under the conditions
described in its labelling. Furthermore, new data and information, including information about product misuse or abuse at the user level,
may lead government agencies, professional societies, practice management groups or patient or trade organizations to recommend or publish
guidance or guidelines related to the use of our products, which may lead to reduced sales of our products.
The FDA and the DEA have
important and complementary responsibilities with respect to our business. The FDA administers an application and post-approval monitoring
process to confirm that products that are available in the market are safe, effective, and consistently of uniform, high quality. The
DEA administers registration, drug allotment and accountability systems to satisfy against loss and diversion of controlled substances.
Both agencies have trained investigators that routinely, or for cause, conduct inspections, and both have authority to seek to enforce
their statutory authority and regulations through administrative remedies as well as civil and criminal enforcement actions. The FDA
regulates and monitors the quality of drug clinical trials to provide human subject protection and to support marketing applications.
The FDA may place a hold on a clinical trial and may cause a suspension or withdrawal of product approvals if regulatory standards are
not maintained. The FDA also regulates the facilities, processes, and procedures used to manufacture and market pharmaceutical products
in the U.S. Manufacturing facilities must be registered with the FDA and all products made in such facilities must be manufactured in
accordance with the latest cGMP regulations, which are enforced by the FDA. Compliance with clinical trial requirements and cGMP regulations
requires the dedication of substantial resources and requires significant expenditures. In the event an approved manufacturing facility
for a particular drug is required by the FDA to curtail or cease operations, or otherwise becomes inoperable, or a third-party contract
manufacturing facility faces manufacturing problems, obtaining the required FDA authorization to manufacture at the same or a different
manufacturing site could result in production delays, which could adversely affect our business, results of operations, financial condition,
and cash flow and ability to operate in the future.
The FDA is authorized to
perform inspections of U.S. and foreign facilities under the FFDCA. At the end of such an inspection, FDA could issue a Form 483 Notice
of Inspectional Observations, which could cause us to modify certain activities identified during the inspection. Following such inspections,
the FDA may issue an untitled letter as an initial correspondence that cites violations that do not meet the threshold of regulatory
significance of a Warning Letter. FDA guidelines also provide for the issuance of Warning Letters for violations of “regulatory
significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action.
FDA also may issue Warning Letters and untitled letters in connection with events or circumstances unrelated to an FDA inspection.
Similar to other pharmaceutical
companies, during Fiscal 2021, our facilities were subject to routine and new-product related inspections by the FDA. These inspections
resulted in FDA Form 483 observations and a warning letter regarding post marketing adverse drug experience reporting. We have responded
to all inspection observations within the required time frame and have implemented, or are continuing to implement, the corrective action
plans as agreed with the relevant regulatory agencies.
Many of our products contain
controlled substances. The stringent DEA regulations on our use of controlled substances include restrictions on their use in research,
manufacture, distribution, and storage. A breach of these regulations could result in imposition of civil penalties, refusal to renew
or action to revoke necessary registrations, or other restrictions on operations involving controlled substances. In addition, failure
to comply with applicable legal requirements subjects the manufacturing facilities of our subsidiaries and manufacturing partners to
possible legal or regulatory action, including shutdown. Any such shutdown may adversely affect their ability to supply us with product
and thus, our ability to market affected products. This could have a negative impact on our business, results of operations, financial
condition, cash flows and competitive position. See also the risk described under the caption “The DEA limits the availability
of the active ingredients used in many of our current products and products in development, as well as the production of these products,
and, as a result, our procurement and production quotas may not be sufficient to meet commercial demand or complete clinical trials.”
In addition, we are subject to the Federal Drug Supply Chain Security Act (DSCSA). The U.S. government has enacted DSCSA which requires
development of an electronic pedigree to track and trace each prescription drug at the saleable unit level through the distribution system,
which will be effective incrementally over a 10-year period. Compliance with DSCSA and future U.S. federal or state electronic pedigree
requirements may increase our operational expenses and impose significant administrative burdens.
We cannot determine what
effect changes in regulations or legal interpretations or requirements by the FDA or the courts, when and if promulgated or issued, may
have on our business in the future. Changes could, among other things, require different labelling, monitoring of patients, interaction
with physicians, education programs for patients or physicians, curtailment of necessary supplies, or limitations on product distribution.
These changes, or others required by the FDA or DEA could have an adverse effect on the sales of these products. The evolving and complex
nature of regulatory science and regulatory requirements, the broad authority and discretion of the FDA and the generally high level
of regulatory oversight results in a continuing possibility that, from time to time, we will be adversely affected by regulatory actions
despite our ongoing efforts and commitment to achieve and maintain full compliance with all regulatory requirements.
Furthermore, once a product
receives marketing approval, the manufacturing, distribution, processing, formulation, packaging, labelling, promotion and sale of our
products are subject to extensive regulation by federal agencies, including, without limitation, the FDA, DEA, FTC, Consumer Product
Safety Commission, and Environmental Protection Agency, among others. We are also subject to state and local laws, regulations, and agencies
in New Jersey and elsewhere. Such regulations are also subject to change by the relevant federal, state and local agencies. For instance,
beginning from January 1, 2015, manufacturers, wholesale distributors, and repackages of certain prescription drugs are required to provide
and capture certain product tracing information under the Drug Quality and Security Act (“DQSA”). Title II of the
DQSA, referred to as the Drug Supply Chain Security Act, requires companies in certain prescription drugs’ chain of distribution
to build electronic, interoperable systems to identify and trace the products as they are distributed in the United States. Compliance
with the DQSA or any future federal or state electronic pedigree requirements may increase the Company’s operational expenses and impose
significant administrative burdens.
Regulatory agencies such
as the FDA regularly inspect our manufacturing facilities and the facilities of our third-party suppliers. The failure of the Northvale
Facility, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may lead to breach of representations
made to our customers or to regulatory or government action against us related to products made in that facility. We have in the past
received and successfully resolved Form 483 observations from the FDA regarding certain operations within our manufacturing network.
Although we remain committed to continuing to improve our quality control and manufacturing practices, we cannot be assured that the
FDA will continue to be satisfied with our quality control and manufacturing systems and standards. If we receive any future FDA observations,
we may be subject to regulatory action including, among others, monetary sanctions or penalties, product recalls or seizure, injunctions,
total or partial suspension of production and/or distribution, and suspension or withdrawal of regulatory approvals. Further, other federal
agencies, our customers and partners in our alliance, development, collaboration, and other partnership agreements with respect to our
products and services may take any such Form 483 observations into account when considering the award of contracts or the continuation
or extension of such partnership agreements. If we receive any future Form 483 observations or warning letters from the FDA, our business,
consolidated results of operations and consolidated financial condition could be materially and adversely affected.
With respect to environmental,
safety and health laws and regulations, we cannot accurately predict the outcome or timing of future expenditures that we may be required
to make in order to comply with such laws as they apply to our operations and facilities. We are also subject to potential liability
for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities.
We are subject periodically to environmental compliance reviews by environmental, safety, and health regulatory agencies. Environmental
laws are subject to change and we may become subject to stricter environmental standards in the future and face larger capital expenditures
in order to comply with environmental laws.
Compliance with federal and
state and local law regulations, including compliance with any newly enacted regulations, requires substantial expenditures of time,
money, and effort to ensure full technical compliance. Failure to comply with the FDA, DEA, EPA and other governmental regulations can
result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, exposure to product liability claims,
total or partial suspension of production or distribution, suspension of the FDA’s review of NDAs or ANDAs, enforcement actions,
injunctions and civil or criminal prosecution, any of which could have a material and adverse effect on our business, results of operations
and financial condition.
Decreases in the degree to which individuals
are covered by healthcare insurance and levels of third party reimbursement could result in decreased use of our products and lower prices.
Employers may seek to reduce
costs by reducing or eliminating employer group healthcare plans or by transferring a greater portion of their healthcare costs to their
employees. Job losses, or other economic hardships, especially, but not limited to those hardships resulting from the effects of the
COVID-19 global pandemic, may also result in reduced levels of coverage for some individuals, potentially resulting in lower healthcare
coverage for themselves or their families. Furthermore, increased instability in the insurance marketplace or an increase in uninsured
Americans or others living and working in the USA may result from the Tax Cuts and Jobs Act of 2017 elimination of the Patient Protection
and Affordable Care Act (PPACA)’s requirement that individuals maintain health insurance or incur a financial penalty and other
steps taken by various governmental and other organizations to limit or end subsidies to such individuals at comparatively lower income
levels. These economic conditions may affect an individual’s ability to afford healthcare as a result of increased premiums, co-pay
or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations, lost healthcare coverage or for other
reasons. It is possible that such conditions could lead to changes in patient behavior and spending patterns that could negatively affect
prescription and usage of certain or all of our products, including, without limitation, delaying of treatment, rationing of prescription
medications, non-filling of prescriptions, reduction in the frequency of visits to healthcare facilities, utilizing alternative therapies
or foregoing healthcare insurance coverage altogether. Such changes may result in the reduced demand for any or all of our products,
which could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability to operate
as a going concern.
In December 2018, the U.S.
District Court for the Northern District of Texas held in Texas v. Azar that, because the provisions of the PPACA requiring certain
individuals to either obtain health insurance or pay a shared responsibility payment (known as the individual mandate) are no longer
permissible under the U.S. Congress’ taxing power, the entire PPACA is no longer constitutional. The decision was appealed to the
U.S. Court of Appeals for the Fifth Circuit. In December 2019, the Fifth Circuit issued an opinion holding that, while the individual
mandate was no longer constitutional, the case must be remanded to the district court to further evaluate whether the mandate can be
severed from the PPACA or the entire PPACA must be stricken down. In January 2020, petitions for certiorari were filed requesting that
the U.S. Supreme Court review the Fifth Circuit’s decision and ultimately decide the constitutionality of the PPACA. In March 2020,
the U.S. Supreme Court granted certiorari in the consolidated cases of Texas v. California and California v. Texas, both
of which address the Fifth Circuit’s decision to strike down the individual mandate, while sending back to the district court the
question of the overall law’s constitutionality. The cases were argued before the U.S. Supreme Court in November 2020 and a decision
is expected during the current Supreme Court term in 2021. Changes in law resulting from this ongoing lawsuit or other court challenges
to the PPACA could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability
to operate as a going concern.
Furthermore, our ability
to commercialize and generate revenues and profit splits relating to the sale of our products depends, in part, on the extent to which
reimbursement for the costs of these products is available from government healthcare programs, such as Medicaid and Medicare, private
health insurers and others. We cannot be certain that, over time, third party reimbursements for our products will be adequate for us
to maintain price levels sufficient for realization of an appropriate return on our investment. Government payers, private insurers and
other third party payers are increasingly attempting to contain healthcare costs by: (i) limiting both coverage and the level of reimbursement
(including adjusting co-pays) for drugs, (ii) refusing, in some cases, to provide any coverage for off-label uses for drugs and (iii)
requiring or encouraging, through more favorable reimbursement levels or otherwise, the substitution of generic alternatives to branded
drugs. For example, government agencies or third-party payers could attempt to reduce reimbursement for physician administered products
through their interpretation of complex government price reporting obligations and payment and reimbursement coding rules, and could
attempt to reduce reimbursement for separate physician administered products that share an active ingredient by requiring the blending
of sales and pricing information in the same payment and reimbursement code.
There have been several recent
U.S. Congressional inquiries, hearings and proposed and enacted federal and state legislation and rules, as well as executive orders,
designed to, among other things: (i) reduce or limit the prices of drugs and make them more affordable for patients, such as by tying
the prices that Medicare reimburses for physician administered drugs to the prices of drugs in other countries; (ii) reform the structure
and financing of Medicare Part D pharmaceutical benefits, including through increasing manufacturer contributions to offset Medicare
beneficiary costs; (iii) bring more transparency to how manufacturers price their medicines; (iv) enable the government to directly negotiate
prices for drugs covered under Medicare; (v) revise rules associated with the calculation of Medicaid Average Manufacturer Price and
Best Price, including with regard to the manner in which pharmaceutical manufacturers may provide copayment assistance to patients and
the identification of “line extension” drugs, which affect the amount of rebates that manufacturers must pay on prescription
drugs under Medicaid; (vi) eliminate anti-kickback statute discount safe harbor protection for manufacturer rebate arrangements with
Medicare Part D Plan Sponsors and pharmacy benefit managers on behalf of Part D Plan Sponsors; (vii) create new anti-kickback statute
safe harbors applicable to certain point-of-sale discounts to patients and fixed-fee administrative fee payment arrangements with pharmacy
benefit managers; and (viii) and facilitate the importation of certain lower-cost drugs from other countries. In addition, state legislatures
have enacted legislation and regulations designed to control pharmaceutical and biological product pricing, including restrictions on
pricing or reimbursement at the state government level, marketing cost disclosure and transparency measures, and, in some cases, policies
to encourage importation of drugs from other countries (subject to federal approval) and bulk purchasing, including the National Medicaid
Pooling Initiative. While we cannot predict the final form of pending legislative, regulatory and/or administrative measures, some of
the pending and enacted legislative proposals or executive rulemaking, such as those incorporating International Pricing Index or Most-Favored-Nation
models, could significantly reduce the coverage and levels of reimbursement for products.
The unavailability of, or
reduction in, the reimbursement of our products could have a material adverse effect on our business, ability to operate as a going concern,
financial condition, results of operations and cash flow.
Our business may be adversely affected
by legislation or healthcare regulatory reform and initiatives.
Our business and financial
condition may be adversely affected by legislation or regulatory reform of the healthcare system in the United States. We cannot predict
with any certainty how existing laws may be applied or how laws or legal standards may change in the future. Current or future legislation,
whether state or federal, or in any of the non-U.S. jurisdictions with authority over our suppliers, customers or operations, may have
a material effect on our business, ability to operate, financial condition, results of operations and cash flows.
In April 2018, New York enacted
a statute called the Opioid Stewardship Act (the Stewardship Act), which, among other things, provided for certain sellers and distributors
of certain opioids in the state of New York (the Contributing Parties) to make payments to a newly created Opioid Stewardship Fund (the
Fund). The Stewardship Act is a component in the degradation of commercial prospects of SequestOxTM, which are significant
factor in the decision to pause development of this product. By its terms, the Stewardship Act required Contributing Parties to pay a
total of up to $100 million annually into the Fund, with each Contributing Party’s share based on the total amount of morphine
milligram equivalents of certain opioids sold or distributed by the Contributing Party in the state of New York during the preceding
calendar year, subject to potential adjustments by the New York State Department of Health. Failure of a Contributing Party to make required
reports or pay its ratable share, or a Contributing Party passing on the cost of its ratable share to a purchaser, could subject the
Contributing Party to penalties. In December 2018, the U.S. District Court for the Southern District of New York held the Stewardship
Act unconstitutional. This ruling is on appeal. If the decision is reversed, we may be deemed to be a Contributing Party under the Stewardship
Act and even if we are not considered to be a Contributing Party, or such a determination is never made, other entities may attempt to
seek reimbursement from us for payments made related to products manufactured by us and distributed in New York. Furthermore, the application
of the Stewardship Act may require additional regulatory guidance, which could be substantially delayed, increasing the uncertainty as
to the ultimate effect of the Stewardship Act on us. If we are ultimately deemed to be a Contributing Party under the Stewardship Act,
or similar legislation that could be enacted by New York or other jurisdictions, compliance with those laws could have an adverse effect
on our business, results of operations, financial condition and cash flows.
Providing further impediment
to the commercial viability of SequestOxTM, New York State, in April 2019 enacted an excise tax on the first sale of every
opioid unit in New York.
Additionally, in October
2018, the U.S. Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities
Act (H.R. 6). Intended to achieve sweeping reform to combat the opioid epidemic, H.R. 6, among other provisions, amends related laws
administered by the FDA, DEA and CMS. Among other things, the law: amends requirements related to the FDA’s authority to include
packaging requirements in REMS requirements; increases civil and criminal penalties for drug manufacturers and distributors for failing
to maintain effective controls against diversion of opioids or for failing to report suspicious opioid orders; requires the DEA to estimate
the amount of opioid diversion when establishing manufacturing and procurement quotas; implements expanded anti-kickback and financial
disclosure provisions; and authorizes the Department of Health and Human Services to implement a demonstration program which would award
grants to hospitals and emergency departments to develop, implement, enhance or study alternative pain management protocols and treatments
that limit the use and prescription of opioids in emergency departments. While the effect of this legislation is still uncertain, it
is not reasonably unlikely that our products will be affected by enforcement of the legislation, including through related policies and
implementing regulations. There can be no assurances that the effects of this legislation will not be detrimental to our business, results
of operations, financial condition, cash flow or ability to operate.
Furthermore, the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively commonly referred to
as the “Affordable Care Act” may affect the operational results of companies in the pharmaceutical industry such as ours
by imposing additional costs. Effective January 1, 2010, the Affordable Care Act, amongst other changes, increased the minimum Medicaid
drug rebates for pharmaceutical companies and revised the definition of “average manufacturer price” for reporting purposes,
which may affect the amount of Medicaid drug rebates to states related to the sales of our products, whether such sales are made directly
by Company or by one of the Company’s licensees. Beginning in 2011, the law also imposed a significant annual fee on companies
that manufacture or import branded prescription drug products.
The Affordable Care Act contemplates
the promulgation of significant future regulatory action which may also further affect our business. In addition, since its enactment,
the legislative and executive branches of the federal government have proposed multiple revisions to the Affordable Care Act, the effect
of which, if implemented, may result in changes to the health care laws or regulatory framework that could result in the reduction of
revenues or increased costs which could also have a material adverse effect on our business, results of operations and financial condition.
Extensive industry regulation
has had and will continue to have, a significant impact on business in the areas of cost of goods, product development and our manufacturing
and distribution capabilities. We, like all other pharmaceutical companies located or engaged in business in the U.S. are subject to
extensive, complex, costly and evolving regulation by the federal government, including the FDA and, in the case of controlled drugs,
the DEA, as well as applicable state government agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substance Act and multiple
other federal statutes, regulations and guidance govern or influence the development, testing, manufacture, packing, labelling, storing,
record keeping, safety, approval, advertising, promotion, sale, shipment and distribution of our products.
The process for obtaining
governmental approval to manufacture and market pharmaceutical products is rigorous, time-consuming and costly and we cannot predict
the extent to which we may be affected by legislative and regulatory developments. We are dependent on receiving FDA and other governmental
or third-party approvals prior to manufacturing, marketing and shipping our products. The FDA approval process for a particular product
candidate can take several years and requires us to dedicate substantial resources to complete all activities necessary to secure approvals
and we may not be able to obtain regulatory approval for our product candidates in a timely manner, or at all. In order to obtain approval
for our generic product candidates, we must demonstrate that our drug product is therapeutically equivalent and bioequivalent to a drug
previously approved by the FDA through the drug approval process, known as the reference listed drug (“RLD”) or reference
standard drug (“RS”). Bioequivalence may be demonstrated in vivo or in vitro by comparing the generic product candidate to
the innovator drug product. During the FDA review process, the FDA may request additional information and studies to support approval
of an application, which could delay approval of the product and impair our ability to compete with other versions of the generic drug
product.
Inherent to this process
is the possibility that we will not obtain FDA or other necessary approvals, or that the rate, timing and cost of such approvals will
adversely affect our product introduction plans or results of operations. We may carry inventories of certain products in anticipation
of launch and if such products are not subsequently launched, we may be required to write-off the related inventory, if such inventories
have no foreseeable commercial value to us.
In addition, facilities used
to manufacture and/or test materials and drug products we market are subject to periodic inspection of facilities by the FDA, the DEA,
and other authorities to confirm that firms are in compliance with all applicable regulations. The FDA conducts pre-approval and/or post-approval
inspections to determine whether systems and processes are in compliance with cGMP and other FDA regulations. A Form 483 notice is generally
issued at the conclusion of an FDA inspection and lists conditions the FDA inspectors believe may violate cGMP or other FDA regulations.
If more serious violations are identified, the FDA may take additional action, such as issuing warning letters, import alerts, etc. The
DEA and comparable state-level agencies also heavily regulate the manufacturing, holding, processing, security, record-keeping and distribution
of drugs that are controlled substances. We manufacture and/or distribute certain controlled substances and are accordingly subject to
oversight, regulation and inspection by the DEA. The DEA periodically inspects facilities for compliance with its regulations. If our
manufacturing facilities or those of our suppliers fail to comply with applicable regulatory requirements, it could result in regulatory
action and additional costs.
Our inability or the inability
of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, delays in or denials
of new product approvals, warning letters, import alerts, fines, consent decrees restricting or suspending manufacturing operations,
injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and/or criminal prosecution. Any of
these or other regulatory actions could have an adverse material effect on our business, financial condition, results of operations,
cash flows and stock price.
While we have instituted
internal compliance programs, if these programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant
way, it could have an adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
Furthermore, health care
initiatives and other third-party payor cost-containment pressures have caused and could continue to cause us to sell our products at
lower prices, resulting in decreased revenues. Some of our products that are marketed under license granted to marketing partners such
as Lannett, Burel, Epic Pharma and TAGI, in turn, purchased or reimbursed by state and federal government authorities, private health
insurers and other organizations, such as health maintenance organizations, or HMOs and managed care organizations, or MCOs. Third-party
payors increasingly challenge pharmaceutical product pricing. There also continues to be a trend toward managed health care in the United
States. Pricing pressures by third-party payors and the growth of organizations such as HMOs and MCOs could result in lower prices and
a reduction in demand for our products.
One such governmental program,
known as the 340B Program, requires pharmaceutical manufacturers to enter into an agreement, called a pharmaceutical pricing agreement
(PPA), with the Secretary of Health and Human Services. Under the PPA, the manufacturer agrees to provide front-end discounts on covered
outpatient drugs purchased by specified providers, called “covered entities,” that serve the nation’s most vulnerable
patient populations. Outpatient prescription drugs, over the counter drugs (accompanied by a prescription), and clinic-administered drugs
within eligible facilities are covered.
In addition, legislative
and regulatory proposals and enactments to reform health care and government insurance programs could significantly influence the manner
in which pharmaceutical products and medical devices are prescribed and purchased. We expect there will continue to be federal and state
laws and/or regulations, proposed and implemented, that could limit the amounts that federal and state governments will pay for health
care products and services. The extent to which future legislation or regulations, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
For example, H.R.987, the “Strengthening Health Care and Lowering Prescription Drug Costs Act,” which incorporated a bipartisan
effort to address prescription drug pricing combined with broader provisions protecting the Affordable Care Act, was passed by the House
of Representatives on May 16, 2019, but it is not expected to pass in the Senate. The bill does represent bipartisan consensus on the
need to reform the drug pricing system. Such measures or other health care system reforms that are adopted could have a material adverse
effect on our industry generally and our ability to successfully commercialize our products or could limit or eliminate our spending
on development projects and affect our ultimate profitability, which could have a material adverse effect on our business, financial
condition, results of operations, cash flow and stock price.
Recently enacted state laws
could also affect the pricing of our products and could reduce our profitability. Since 2016, several state legislatures have enacted
laws regulating the pricing of various types of pharmaceutical products, including generic pharmaceutical products. These laws vary in
applicability and scope, and generally require manufacturers to notify various state agencies of price increases over a given threshold
for a given period of time and to include a justification for any price increases. At least one state law (subsequently struck by the
court) authorized the state attorney general to seek civil penalties and disgorgement in the event a price increase is deemed unconscionable.
To the extent these laws apply to our products, they could limit the prices which the company may charge for its products and reduce
the company’s profitability and could have a material adverse effect on our business, growth prospects, financial condition, results
of operations, cash flow and stock price.
Use of generics may be limited through
legislative, regulatory or efforts of pharma companies.
Many pharmaceutical companies
increasingly have used state and federal legislative and regulatory means to delay generic competition, which, if successful, could limit
the use of generic pharmaceuticals. These efforts have included:
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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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Seeking changes to U.S. Pharmacopeia, an organization that publishes
industry recognized compendia of drug standards;
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Attaching patent extension amendments to non-related federal legislation;
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Persuading regulatory bodies to withdraw the approval of brand-name
drugs for which the patents are about to expire and converting the market to another product of the brand company on which longer
patent protection exists;
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Entering into agreements whereby other generic companies will begin
to market an authorized generic at the same time or after generic competition initially enters the market;
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Filing suits for patent infringement and other claims that may delay
or prevent regulatory approval, manufacture and/or scale of generic products; and,
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Introducing “next generation” products prior to the expiration
of market exclusivity for the reference product, which often materially reduces demand for the generic or the reference product for
which we seek regulatory approval for a generic equivalent.
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Some pharmaceutical companies
have lobbied the United States Congress for amendments to the Hatch-Waxman Act that would give them additional advantages over generic
competitors. For example, although the term of a company’s drug patent can be extended to reflect a portion of the time an NDA
is under regulatory review, some companies have proposed extending the patent term by a full year for each year spent in clinical trials
rather than the one-half year that is currently permitted.
If pharmaceutical companies
or other third parties are successful in limiting the use of generic products through these or other means, our sales of generic products
and our growth prospects may decline. A material decline in generic product sales will have a material adverse effect on our results
of operations, financial condition, cash flows and our ability to operate.
New tariffs and evolving trade policy between
the US and other countries may adversely affect our business.
New tariffs and evolving
trade policy between the United States and other countries, including China and Mexico, may have an adverse effect on our sourcing of
critical raw materials from suppliers located outside of the United States and corresponding adverse effects on our business and results
of operations.
Some of our suppliers, including
those of critical active pharmaceutical ingredients are located outside of the United States. There is uncertainty about the future relationship
between the U.S. and various other countries, including China, with respect to trade policies, treaties, government regulations and tariffs
under the Biden Administration.
It is unclear to what extent
the Biden Administration will continue to pursue the trade policies of the Trump Administration. The Biden Administration may seek to
impose certain additional restrictions on international trade, such as increased tariffs on goods imported into the U.S. Such tariffs
could potentially disrupt our existing supply chains and impose additional costs on our business, including costs with respect to raw
materials upon which our business depends. Furthermore, if tariffs, trade restrictions or trade barriers are placed on products such
as ours by foreign governments, it could cause us to raise prices for our products, which may result in the loss of customers. If we
are unable to pass along increased costs to our customers, our margins could be adversely affected. Additionally, it is possible that
further tariffs may be imposed that could affect imports of APIs and other materials used in our products, or our business may be adversely
impacted by retaliatory trade measures taken by other countries, including restricted access to APIs or other materials used in our products,
causing us to raise prices or make changes to our products. Further, the continued threats of tariffs, trade restrictions and trade barriers
could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales. For example, the Trump Administration
placed tariffs on certain goods imported from China. In January 2020, the U.S. and China agreed to roll back certain tariffs, expand
trade purchases and impose binding commitments on intellectual property, technology transfer and currency practices. Nevertheless, given
the volatility and uncertainty regarding the scope and duration of these tariffs and other aspects of U.S. international trade policy,
the impact on our operations and results is uncertain and could be significant. Further governmental action related to tariffs, additional
taxes, regulatory changes or other retaliatory trade measures could occur in the future. Any of these factors could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
The DEA could limit the availability of
active ingredients used in many of our products.
The DEA limits the availability
of the active ingredients used in many of our current products and products in development, as well as the production and distribution
of these products, and, as a result, our procurement, production, and distribution quotas may not be sufficient to meet commercial demand
or complete clinical trials.
The DEA regulates chemical
compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance
abuse and Schedule V substances the lowest risk. The active ingredients in some of our current products and products in development,
including, without limitation, hydromorphone, methadone, phentermine, phendimetrazine and oxycodone, are listed by the DEA as Scheduled
substances under the Controlled Substances Act of 1970. Consequently, their manufacture, shipment, storage, sale, and use are subject
to a high degree of regulation. Furthermore, the DEA limits the availability of the active ingredients used in many of our current products
and products in development and we and/or our contract customers and suppliers, must annually apply to the DEA for procurement quotas
in order to obtain and distribute these substances. As a result, our procurement and production quotas may not be sufficient to meet
commercial demand or to complete clinical trials. Moreover, the DEA may adjust these quotas from time to time during the year, although
the DEA has substantial discretion in whether or not to make such adjustments. Any delay or refusal by the DEA in establishing our quotas,
or modification of our quotas, for controlled substances could delay or result in the stoppage of our clinical trials or product launches
or could cause trade inventory disruptions for those products that already been launched, which could have a material adverse effect
on our business, financial position, cash flows and stock price.
Changes in FDA approval requirements may
prevent or delay approval of new products.
Approvals for our new generic
drug products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.
The FDA may institute changes
to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval for our new generic products.
For instance, in July 2012, the Generic Drug Fee User Amendments of 2012 (“GDUFA”) was enacted into law. The GDUFA
legislation implemented fees for new ANDAs, Drug Master Files, product and establishment fees and a one-time fee for back-logged ANDAs
pending approval as of October 1, 2012. In return, the program is intended to provide faster and more predictable ANDA reviews by the
FDA and increased inspections of drug facilities. Under GDUFA, generic product companies face significant penalties for failure to pay
the new user fees, including rendering an ANDA not “substantially complete” until the fee is paid. Any failure by us or our
suppliers to pay the fees or to comply with the other provisions of GDFUA may impact or delay our ability to file ANDAs, obtain approvals
for new generic products, generate revenues and thus may have a material adverse effect on our business, results of operations and financial
condition.
In addition to the implementation
of new fees and review procedures by the FDA, the FDA may also implement other changes that may directly affect some of our ANDA filings
pending approval from the FDA, such as changes to guidance from the FDA regarding bioequivalency requirements for particular drugs. Such
changes may cause our development of such generic drugs to be significantly more difficult or result in delays in FDA approval or result
in our decision to abandon or terminate certain projects. Any changes in FDA requirements may make it more difficult for us to file ANDAs
or obtain approval of our ANDAs and generate revenues and thus have a material adverse effect on our business, results of operations
and financial condition.
We received a CRL from the FDA indicating
that the SequestOx™ NDA is not ready for approval.
We received a Complete Response
Letter from the FDA that indicated that our SequestOx™ NDA is not ready for approval in its present form. We have paused further
development of this product and we cannot assure that development will restart. If we are unable to obtain approval for SequestOx™
or if we incur significant costs or delays in obtaining such approval, our ability to commercialize SequestOx™ may be materially
adversely affected.
In July 2016, the FDA issued
a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™ NDA is complete
and the application is not ready for approval in its present form. On December 21, 2016, we met with the FDA for an end-of-review meeting
to discuss steps that we could take to obtain approval of SequestOx™. Based on the FDA response, we believe there is a path forward
to address the issues cited in the CRL, with such path forward including modification of the SequestOx™ formulation, and the successful
completion of in vitro and in vivo studies. If we are unable to modify the formulation or if we are unable to successfully complete the
required studies, we will not meet the requirements specified by the FDA for resubmission of the NDA. Furthermore, there can be no assurances
given that the FDA will eventually approve our NDA. If we are unable to obtain approval for SequestOx™, or if we incur significant
costs or delays in obtaining such approval, our ability to commercialize SequestOx™ may be materially adversely affected. Furthermore,
in the event that the Company does receive marketing approval for SequestOx™, there can be no assurances of the Company realizing
future revenues or profits related to this product, or that any such future revenues and profits would be in amounts that provide adequate
return on the significant investments made to secure this marketing authorization. The Company has currently paused further development
of SequestOx™ due to the prohibitive cost of such and attendant risks related thereto.
Regulatory factors may cause us to be unable
to manufacture products or face interruptions in our manufacturing process.
Our manufacturing operations
as well as our suppliers’ manufacturing operations are subject to establishment registration by the FDA and periodic inspections by the
FDA to assure compliance regarding the manufacturing of our products. If we or our suppliers do not maintain the current registrations
or if we or our partners receive notices of manufacturing and quality-related observations following inspections by the FDA, our operating
results would be materially negatively impacted.
Our facilities, as well as
those of applicable suppliers, rely on maintaining current FDA, and DEA if applicable, registration and other license to produce and
develop generic drugs and raw materials used in such operations. If we, or one of our suppliers does not successfully renew and maintain
current FDA, DEA and other required licenses, our operations and financial results would be negatively impacted. We and our suppliers
are subject to periodic inspection by the FDA, DEA and other regulatory agencies, as applicable, to assure regulatory compliance regarding
the manufacture and distribution of pharmaceutical products and raw materials. These regulatory bodies impose stringent mandatory requirements
on the manufacture and distribution of pharmaceutical products to ensure their safety and efficacy. If we or any of our third party suppliers
receive notices of manufacturing and quality-related observations and are unable to satisfactorily resolve the issues and observations
identified in a timely fashion, there could be a material adverse effect on our business, financial condition, results of operations,
cash flow and stock price.
Agreements between branded pharmaceutical
companies and generic pharmaceutical companies are facing increased government scrutiny in the United States and Internationally.
There are numerous and continuing
litigation in which generic companies challenge the validity or enforceability of an innovator products patents and/or the applicability
of such patents to a generic applicant’s products. Settlement of such litigation is a common outcome, with review of such agreements
by the U.S. Federal Trade Commission (the “FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”)
being required by law. The FTC has stated publicly its view that some of these settlement agreements violate antitrust laws and has commenced
actions against the branded and generic companies that are parties to these agreements. Accordingly, in the event of the Company being
party to a settlement agreement, either as the branded, innovator product owner, or as the generic applicant, we may receive formal or
informal requests from the FTC for information about a settlement agreement and there is a risk of the FTC alleging a violation of antitrust
laws and commencing an action against us.
In addition, the United States
Congress has proposed legislation that would limit the types of settlement agreements generic manufacturers can enter into with brand
companies. In 2013, the Supreme Court, in FTC v. Actavis, determined that reverse payment patent settlements between generic and
brand companies should be evaluated under the rule of reason, and provided limited guidance beyond the selection of this standard. Due
to the court’s non-articulation of a precise rule of lawfulness for such settlements, there may be extensive litigation over what
constitutes a reasonable and lawful patent settlement between and brand and generic company.
The impact of such future
litigation, if any, legislative proposals, and potential future court decisions is uncertain, and there can be no assurances that such
impact will not have an adverse effect on the Company’s business, its financial condition, results of operations, cash flows and
its stock price.
Litigation and Liability Related Risks
We may not be able to obtain or maintain
adequate insurance coverages.
The cost of insurance, including
directors and officer insurance, workers compensation, product liability, truck and general liability insurance have increase significantly
in recent years and may continue to increase in the future. We have increased deductibles and/or decreased coverages to mitigate some
of these costs. These insurance premium increases, as well as our increased risk due to reduced coverage and increased deductibles could
have an adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
We may not have and may be
unable to obtain or maintain in the future insurance, on acceptable terms, that provide adequate coverage against potential liabilities
or other losses, such as the cost of a recall or defense against claims, if any claim is brought against us, for any reason, regardless
of the merits, success or failure of such claim. In the past year, as a result of product liability and securities litigation in the
general marketplace, and a threatened claim of action against us in relation to the shareholder vote conducted in December 2019, our
insurance premiums have increased significantly, while also providing no greater, and in most cases, lower levels of coverage. The significant
premium increases experienced were prior to, and accordingly did not consider, the impact of the COVID-19 global pandemic on the legal
and litigation environment in which we and all other companies operate.
The amount of our insurance
coverage is accordingly limited by our financial resources and greatly impacted by the significant premium increases of the past year
and reasonably expected further increases in the near to mid-term due to the global pandemic. Furthermore, even where claims are submitted
to insurance carriers for defenses and indemnity that are within coverage limits, there can be no assurance that such claims will be
fully covered by insurance or that the indemnitors or insurers will remain financially viable to provide reimbursement consistent with
coverage maintained.
Any failure by us, to obtain
sufficient insurance coverage, with reimbursement of claims being provided and generate sufficient cash flow, if needed, above insurance
coverage, to pay amounts due in relation to potential claims, will have a material adverse effect on our business, financial condition,
results of operations, cash flow and ability to operate as a going concern.
Litigation, product liability claims, product
recalls, government investigations and other significant legal proceedings are common in the pharmaceutical industry.
Litigation, product liability
claims, other significant legal proceedings, government investigations and product recalls are common in the pharmaceutical industry
and can be protracted and expensive and could delay and/or prevent entry of our products into the market, which, in turn, could have
a material adverse effect on our business.
As a business that operates
in the pharmaceutical industry, we are inherently exposed to significant potential risks from lawsuits, product liability claims, patent
and proprietary rights claims, other significant proceedings, government investigations or product recalls, including, without limitation,
such matters associated with the testing, manufacturing, marketing and sale of our products. While no such judgements have been made
against us to date, some plaintiffs have received substantial damage awards or settlements against other healthcare companies based upon
various legal theories, including, without limitation, claims for injuries allegedly caused by use of their products. Our business continues
to be inherently exposed to the risk of being subject to product liability cases, as well as other significant legal proceedings and
government investigations.
For example, we have been
a manufacturer of prescription opioid medications in the past, and while we have not been subject to lawsuits, other manufacturers of
such products, as well as distributors and other sellers of such medications, have been subjects of subject of lawsuits and have received
subpoenas and other requests for information from various federal, state and local government agencies regarding the sale, marketing
and/or distribution of prescription opioid medications. Numerous claims against opioid manufacturers, have been and may continue to be
filed by or on behalf of states, counties, cities, Native American tribes, other government-related persons or entities, hospitals, health
systems, unions, health and welfare funds, other third-party payers and/or individuals. In these cases, plaintiffs seek various remedies,
including without limitation declaratory and/or injunctive relief; compensatory, punitive and/or treble damages; restitution, disgorgement,
civil penalties, abatement, attorneys’ fees, costs and/or other relief. Settlement demands may seek significant monetary and other
remedies, or otherwise be on terms that would result in material adverse effects on our business and ability to operate as a going concern.
The precedent of awards against and settlements by our competitors could also incentivize parties to bring additional claims against
us. In addition to the risks of direct expenditures for defense costs, settlements and/or judgments in connection with these claims,
proceedings and investigations, there is a possibility of loss of revenues, injunctions and disruption of business. Furthermore, we and
other manufacturers of prescription opioid medications have been, and will likely continue to be, subject to negative publicity and press,
which could harm our brand and the demand for our products. In addition, current or future regulatory and legislative proposals could
impact us and other manufacturers of prescription opioid medications. See the risk factor “Our business and financial condition
may be adversely affected by legislation” for more information.
In addition, our current
and former products may cause or appear to cause serious adverse side effects or potentially dangerous drug interactions if misused or
improperly prescribed or as a result of faulty surgical technique. Any failure to effectively identify, analyze, report and protect adverse
event data and/or to fully comply with relevant laws, rules and regulations around adverse event reporting could expose the Company to
legal proceedings, penalties, fines and/or reputational damage.
Also, through the use of
social media, plaintiff’s attorneys have a wide variety of tools to advertise their services and solicit new clients for litigation,
including using judgments and settlements obtained in litigation against us or other pharmaceutical companies as an advertising tool.
For these or other reasons, any significant product liability or mass tort litigation in which we are a defendant could have a larger
number of plaintiffs than such actions have seen historically and we could also see an increase in the number of cases filed against
us because of the increasing use of widespread and media-varied advertising. Furthermore, a ruling against other pharmaceutical companies
in product liability or mass tort litigation in which we are not a defendant could have a negative impact on pending litigation where
we are a defendant.
In addition, in certain circumstances,
such as in the case of products that do not meet approved specifications or for which subsequent data demonstrate such products may be
unsafe, ineffective or misused, it may be necessary for us to initiate voluntary or mandatory recalls or withdraw such products from
the market. Any such recall or withdrawal could result in adverse publicity, costs connected to the recall and loss of revenue. Adverse
publicity could also result in an increased number of additional product liability claims, whether or not these claims have a basis in
scientific fact. See the risk factor “Public concern around the abuse of opioids or other products, including without limitation
law enforcement concerns over diversion or marketing practices, regulatory efforts to combat abuse, and litigation could result in costs
to our business” for more information.
We are also inherently exposed
to litigation concerning patents and proprietary rights which can be protracted and expensive. Companies routinely bring litigation against
applicants and allege patent infringement or other violations of intellectual property rights as the basis for filing suit against an
applicant. Elite develops, owns, and/or manufactures generic and branded pharmaceutical products and such drug products may be subject
to such litigation. Litigation often involves significant expense and can delay or prevent introduction or sale of our products.
There may also be situations
where we use our business judgment and decide to market and sell products, notwithstanding the fact that allegations of patent infringement(s)
have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the
owner of a patent for infringement include, among other things, damages measured by the profits lost by the patent owner and not by the
profits earned by the infringer. In the case of a willful infringement, the definition of which is subjective, such damages may be trebled.
Moreover, because of the discount pricing typically involved with bioequivalent products, patented brand products generally realize a
substantially higher profit margin than bioequivalent products. An adverse decision in a case such as this or in other similar litigation
could have a material adverse effect on our business, financial position and results of operations and could cause the market value of
our Common Stock to decline.
If we are found liable in
any lawsuits, including patent infringement, violation of proprietary rights, product liability claims or actions related to our manufacture,
sales, marketing or pricing practices or the sale, marketing and/or distribution of prescription opioid medications, or if we are subject
to government investigations or product recalls, it could result in the imposition of damages, including punitive damages, fines, reputational
harm, civil lawsuits, criminal penalties, interruptions of business, modification of business practices, equitable remedies and other
sanctions against us or our personnel as well as significant legal and other costs. We may also voluntarily settle cases even if we believe
that we have meritorious defenses because of the significant legal and other costs that may be required to defend such actions. Any judgments,
claims, settlements and related costs could be well in excess of any applicable insurance. As a result, we may experience significant
negative impacts on our operations. To satisfy judgments or settlements, we also may need to seek financing, which may not be available
on terms acceptable to us, or at all, when required. Judgments also could cause defaults under our debt agreements and/or restrictions
on our product use and we could incur losses as a result. Any of the risks above could have a material adverse effect on our business,
financial condition, results of operations and cash flows and ability to operate as a going concern.
The occurrence or possibility
of any such result may cause us to pursue one or more significant corporate transactions as well as other remedial measures, including
internal reorganizations, restructuring activities, strategic corporate alignments, cost saving initiatives or asset sales. See the risk
factor “Our ability to fund our operations, maintain liquidity and meet our financing obligations is reliant on our operations,
which are subject to significant risks and uncertainties” for more information. Likewise, any internal reorganizations, restructuring
activities, strategic corporate alignments, cost-saving initiatives or asset sales may be complex, could entail significant costs and
charges or could otherwise negatively impact shareholder value and there can be no assurance that we will be able to accomplish any of
these alternatives on terms acceptable to us, or at all, or that they will result in their intended benefits.
We also may incur significant
liability if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs. In jurisdictions
including, without limitation, the United States, a company is not permitted to promote drugs for uses that are not described in the
product’s labelling and that differ from those that were approved or cleared by the FDA. Such users are commonly referred to as
“off-label uses”. Under what is known as the “practice of medicine”, physicians and other healthcare practitioners
may prescribe drug products for off-label or unapproved uses. While the FDA does not regulate a physician’s choice of medications,
treatments, or product uses, the Federal Food Drug and Cosmetic Act (“FFDC”) and FDA regulations significantly restrict
permissible communications on the subject of off-label uses of drug products by pharmaceutical companies. The FDA, FTC, the Office of
the Inspector General of the Department of Health and Human Services (“HHS”), the DOJ and various state Attorneys
General actively enforce laws and regulations that prohibit the promotion of off-label uses. A company that is found to have improperly
promoted off-label uses may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages,
exclusion from federal funded healthcare programs and potential liability under the federal False Claims Act and any applicable state
false claims act. Conduct giving rise to such liability could also form the basis for private civil litigation by third-party payers
or other persons claiming to be harmed by such conduct.
Notwithstanding the regulatory
restrictions on off-label promotion, the FDA’s regulations and judicial case law allows companies to engage in some forms of truthful,
non-misleading and non-promotional speech concerning the off-label use of products. Elite believes it and its marketing partners comply
with these restrictions.
Nonetheless, the FDA, HHS,
DOJ, and/or state Attorneys General, and qui tam relators may take the position that the Company is not in compliance with such
requirements, and if such non-compliance is proven, the consequences of such may have an adverse material effect on our business, financial
condition, results of operations, cash flows and stock price.
We are also subject to state
and federal laws that govern the submission of claims for reimbursement. The FFCA imposes civil liability on individuals or entities
that knowingly submit, or cause to be submitted, false or fraudulent claims for payment to the government. Violations of the FFCA and
other similar laws may result in criminal fines, imprisonment and substantial civil penalties for each false claim submitted (including
civil penalties presently in excess of $22 thousand per claim, plus treble damages, plus liability for attorney’s fees) and exclusion
from federally funded health care programs, including Medicare and Medicaid. The FFCA also allows private individuals to bring a suit
on behalf of the government against an individual or entity for violations of the FFCA. These suits, also known as Qui Tam or whistle-blower
actions, may be brought by, with only a few exceptions, any private citizen who has material information of a false claim that has not
yet been previously disclosed. These suits have increased significantly in recent years because the FFCA allows an individual to share
in the amounts paid to the federal government in fines or settlement as a result of a successful Qui Tam action, in addition to the recovery
of legal fees in bringing such an action. If our past or present operations are found to be in violation of any of such laws or any other
governmental regulations that may apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
exclusion from federal health care programs and/or the curtailment or restructuring of our operations. Any penalties, damages, fines,
curtailment, or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
Action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal
expenses and divert our management’s attention from the operation of our business.
Recently, the Department
of Justice has begun to use the 1961 federal Travel Act as a tool to pursue criminal charges in the case of health care kickback and
commercial bribery allegations. This law was enacted as part of the Kennedy administration’s war on organized crime. It formed
the basis for a federal enforcement action against a Texas physician-owned specialty hospital and a number of surgeons and administrators,
who were convicted of conspiring to pay or receive bribes in exchange for referrals of patients in violation of a state commercial bribery
law. Importantly, this case was not limited to claims covered under federal programs, and the failure of the state to bring charges under
its own statute did not prevent the federal case from proceeding. The Travel Act may be used by the Justice Department as a way to expand
its reach to penalize kickbacks and similar arrangements even when the Anti-Kickback Statute and FFCA would not apply. These efforts
could increase our vulnerability to litigation and penalties if our past or present operations are found to be in violation of applicable
law which could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
Furthermore, the design,
development, manufacture, distribution and sale of our products involve an inherent risk of product liability claims and associated adverse
publicity. Insurance coverage is expensive, increasing in price to prohibitive levels, may be difficult to obtain or may be not available
in the future on acceptable terms, or at all. Although we currently maintain product liability insurance for our products in amounts
we believe to be commercially reasonable, if the coverage limits of these insurance policies are not adequate, a claim brought against
us, whether covered by insurance or not, could have a material adverse effect on our business, financial condition, results of operations,
cash flow and stock price.
Our products contain narcotic ingredients
which may subject us to increased litigation risk and regulation.
Some of our current products
and products under development contain narcotics. Misuse or abuse of such drugs can lead to physical or other hard. The FDA and/or the
DEA may impose new regulations concerning the manufacture, storage, transportation, distribution, and sale of prescription narcotics.
Such regulations may include new labelling requirements, the development and implementation of a formal REMS, restrictions on prescription
and sale of such products and mandatory reformulation in order to make abuse of such products more difficult. In 2007, Congress passed
legislation authorizing the FDA to require companies to undertake post-approval studies in order to assess known or signaled potential
serious safety risks and to make any labelling changes necessary to address safety risks. Congress also empowered the FDA to require
companies to formulate REMS to confirm a drug’s benefits exceed its risks. In 2011, the FDA issued letters to manufacturers of
long-acting and extended-release opioids requiring them to develop and submit to the FDA a post-market REMS plan to require that training
be provided to prescribers of these products and that information is provided to prescribers that they can use in counselling patients
on the risks and benefits of opioid drug use. Elite does not currently own a product that requires a REMS plan, but some of the products
in our pipeline may require a REMS plan. The federal government has also released a comprehensive action plan to reduce prescription
drug abuse, which may include proposed legislation to amended existing controlled substances laws to require healthcare practitioners
who request DEA registration to prescribe controlled substances to receive training on opioid prescribing practices as a condition of
registration. In addition, state health departments and boards of pharmacy have authority to regulate distribution and may modify their
regulations with respect to prescription narcotics in an attempt to curb abuse.
Such new regulations or requirements
may be difficult or cost prohibitive for us to comply with, resulting in delays in the commercialization of new products, and decreased
profitability of existing and new products. Such occurrences may have material adverse effects on our business, financial condition,
results of operations, cash flows and stock price.
Public concern over abuse of opioids has
negatively affected our business.
While Elite has de-emphasized
its programs with respect to opioids and will continue to focus on products other than opioids, certain governmental and regulatory agencies,
as well as state and local jurisdictions, are focused on the abuse of opioid medications in the United States. State and local governmental
agencies may investigate us as a manufacturer and/or distributor of medicines containing opioids or in conjunction with their investigation
of other pharmaceutical wholesale distributors, and others in the supply chain that have a direct or indirect connection to our operations
in relation to the distribution of opioid medications. In addition, multiple lawsuits have been filed against other pharmaceutical manufacturers
and distributors alleging, among other claims, that they failed to provide effective controls and procedures to guard against the diversion
of controlled substances, acted negligently by distributing controlled substances to pharmacies that serve individuals who abuse controlled
substances, and failed to report suspicious orders of controlled substances in accordance with regulations. Additional governmental entities
have indicated an intent to sue these other manufacturers and distributors. While no such actions have been taken against us, the immediate
effect on the Company has been an inability to commercialize and market three opioid products approved during fiscal years prior to the
twelve months ended March 31, 2020 and a cessation of orders for another two other opioid products that had been marketed by our marketing
partners. During the year ended March 31, 2020, we disposed of four approved ANDA’s for opioid products. As of March 31, 2020,
we continue to hold one approved ANDA for an opioid product that, while approved by the FDA, has not been launched commercially. Further,
defense against any such opioid related lawsuits could be prohibitive with regards to cost resulting in an adverse material effect on
our business, financial condition, results of operations, cash flows and stock price. Similar allegations made against us, even without
litigation, could also negatively affect our business in various ways, including through increased costs and harm to our reputation.
In addition, an adverse resolution of any lawsuit or investigation could also have a material adverse effect on our business, results
of operations, cash flows and stock price.
Illegal distribution and third party sale
of counterfeit versions of our products could have a detrimental effect on our reputation and business.
Third parties could illegally
distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards that our
products undergo. Counterfeit products are frequently unsafe or ineffective and can be life-threatening. Counterfeit medicines may contain
harmful substances, the wrong dose of the active pharmaceutical ingredient or no active pharmaceutical ingredients at all. However, to
distributors and users, counterfeit products may be visually indistinguishable from the authentic version.
Reports of adverse reactions
to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic product. It is
possible that adverse events caused by unsafe counterfeit products will mistakenly be attributed to the authentic product. In addition,
thefts of inventory at warehouses, plants or while in-transit, which are not properly stored, and which are sold through unauthorized
channels could adversely impact patient safety, our reputation, and our business.
Public loss of confidence
in the integrity of pharmaceutical products as a result of counterfeiting or theft could have a material adverse effect on our business,
results of operations and financial condition.
Structural and Organizational Risks
We have identified material weaknesses
in internal controls in prior years.
Our management is responsible
for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange
Act.
During the prior fiscal year
ended March 31, 2019, the Company identified certain material weaknesses in internal controls over financial reporting which were remediated
during the fiscal year ended March 31, 2020, with such remediation also being effective during this current fiscal year. A material weakness
is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The remediation
actions taken required the retention of additional personnel and consultants, the continued retention of which is subject to the Company’s
financial condition.
Despite the successful remediation
of material weaknesses identified in the prior fiscal year, there can be no assurances of the continued operation of controls, due to
the financial burden such controls place on the Company, as well as the effects of other operating challenges, such as the COVID-19 global
pandemic or similar situation, which may result in our inability to maintain an environment of internal controls over financial reporting
that does not have material weaknesses.
Furthermore, additional material
weaknesses in our internal controls may be discovered or occur in the future that may materially adversely affect our ability to report
our financial condition and results of operations in a timely and fairly stated manner and there will be an increased risk of future
misstatements.
Although we regularly review
and evaluate internal controls systems to allow management to report on the effectiveness of our internal controls over financial reporting,
we may discover additional weaknesses in our internal controls over financial reporting or disclosure controls and procedures. The next
time we evaluate our internal controls over financial reporting and disclosure controls and procedures, if we identify one or more new
material weaknesses or are unable to timely remediate our previously identified material weaknesses, we would be unable to conclude that
our internal controls over financial reporting or disclosure controls and procedures are effective. If we are unable to conclude that
our internal controls over financial reporting or our disclosure controls and procedures are effective, or if our independent registered
public accounting firm expresses an opinion, if such is required, that our internal controls over financial reporting is ineffective,
we may not be able to report our financial condition and results of operations in a timely and fairly stated manner, which could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares to decline. In addition, any potential future restatements could subject us to additional adverse consequences,
including sanctions by the SEC, shareholder litigation and other adverse actions. Moreover, we may be the subject of further negative
publicity focusing on such financial statement adjustments and resulting restatement and negative reactions from our shareholders, creditors
or others with whom we do business. The occurrence of any of the foregoing could have a material adverse effect on our business, financial
condition, cash flows and results of operations and could cause the market value of our common shares to decline.
Provisions of our Articles of Incorporation
could deter a change of management and discourage offers to acquire us.
Provisions of our Articles
of Incorporation and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders to remove existing
management and might discourage a third party from offering to acquire us, even if a change in control or in Management would be beneficial
to our shareholders. For example, as discussed above, our Articles of Incorporation allows us to issue shares of preferred stock without
any vote or further action by our shareholders. Our Board of Directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further shareholder approval.
As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred
right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common
stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In this regard,
on November 15, 2013, we entered into a Shareholder Rights Plan and, under the Rights Plan, our Board of Directors declared a dividend
distribution of one Right for each outstanding share of our common stock and one right for each share of Common Stock into which any
of our outstanding Preferred Stock is convertible, to shareholders of record at the close of business on that date. Each Right entitles
the registered holder to purchase from us one “Unit” consisting of one one-millionth (1/1,000,000) of a share of Series H
Junior Participating preferred stock, at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November
15, 2023, the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer, the Rights
Plan’s the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable to him pursuant
to his employment agreement and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors into three classes.
Intellectual Property Related Risks
Our ability to protect intellectual property
rights and successfully defend third party allegations of intellectual property infringement is vital to our business and uncertain.
Our success depends on our
ability to protect our current and future products and to defend our intellectual property rights. If we fail to protect our intellectual
property adequately, competitors may manufacture and market products similar to ours.
We currently hold six patents.
We intend to file further patent applications in the future. We cannot be certain that our pending patent applications will result in
the issuance of patents. If patents are issued, third parties may sue us to challenge our patent protection, and although we know of
no reason why they should prevail, it is possible that they could. In addition to modification or revocation of patents in legal proceedings,
issued patents may later be modified or revoked by the U.S. Patent and Trademark Office or by analogous foreign offices. It is likewise
possible that our patent rights may not prevent or limit our present and future competitors from developing, using or commercializing
products that are similar or functionally equivalent to our products.
In addition, we may be required
to obtain licenses to patents, or other proprietary rights of third parties, in connection with the development and use of our products
and technologies as they relate to other persons’ technologies. At such time as we discover a need to obtain any such license,
we will need to establish whether we will be able to obtain such a license on favorable terms, if at all. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture or distribution of our products.
We rely particularly on trade
secrets, unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by entering into confidentiality
agreements with licensees, suppliers, employees, and consultants. We cannot provide assurance that these agreements will not be breached
or circumvented. We also cannot be certain that there will be adequate remedies in the event of a breach. Disputes may arise concerning
the ownership of intellectual property or the applicability of confidentiality agreements. We cannot be sure that our trade secrets and
proprietary technology will not otherwise be obtained by other entities, such as government or regulatory authorities, or become known,
obtained, or independently developed by our competitors or by other entities through means beyond our control. We also cannot be sure
that, if patents are not issued with respect to products arising from research, we will be able to maintain the confidentiality of information
relating to these products. In addition, efforts to ensure our intellectual property rights can be costly, time-consuming, and/or ultimately
unsuccessful.
Furthermore, companies that
produce branded pharmaceutical products routinely bring litigation against ANDA or similar applicants that seek regulatory approval to
manufacture and market generic forms of branded products, alleging patent infringement or other violations of intellectual property rights.
Patent holders may also bring patent infringement suits against companies that are currently marketing and selling approved generic products.
Litigation often involves significant expense. Additionally, if the patents of others are held valid, enforceable and infringed by our
current products or future product candidates, we would, unless we could obtain a license from the patent holder, need to delay selling
our corresponding generic product and, if we are already selling our product, cease selling and potentially destroy existing product
stock. Additionally, we could be required to pay monetary damages or royalties to license proprietary rights from third parties and we
may not be able to obtain such licenses on commercially reasonable terms or at all.
There may be situations in
which we may make business and legal judgments to market and sell products that are subject to claims of alleged patent infringement
prior to final resolution of those claims by the courts based upon our belief that such patents are invalid, unenforceable or are not
infringed by our marketing and sale of such products. This is commonly referred to in the pharmaceutical industry as an “at-risk”
launch. The risk involved in an at-risk launch can be substantial because, if a patent holder ultimately prevails against us, the remedies
available to such holder may include, among other things, damages calculated based on the profits lost by the patent holder, which can
be significantly higher than the profits we make from selling the generic version of the product. Moreover, if a court determines that
such infringement is willful, the damages could be subject to trebling. We could face substantial damages from adverse court decisions
in such matters. We could also be at risk for the value of such inventory that we are unable to market or sell.
The occurrence of any of
the above could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
Risks Related to our Common Shares
Dilution from issuance of shares to Lincoln
Park, Directors, Employees, Consultants or upon exercise of warrants and options or the perception that dilution may occur could cause
the price per share of common stock to fall.
On July 8, 2020, we entered
into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $25,000,000 of our common
stock. Concurrently with the execution of the Purchase Agreement, we issued 5,975,857 shares of our common stock to Lincoln Park as an
initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement. Furthermore, for each additional
purchase by Lincoln Park, additional commitment shares in commensurate amounts up to a total of 5,975,857 shares will be issued based
upon the relative proportion of the aggregate amount of $25,000,000 purchased by Lincoln Park. The purchase shares that may be sold pursuant
to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after
July 27, 2020 and expiring on August 1, 2023. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement
will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the
trading price of our common stock to fall.
We generally have the right
to control the timing and amount of any sales of our shares to Lincoln Park. Additional sales of our common stock, if any, to Lincoln
Park will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all, some, or
none of the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln
Park may sell all, some or none of those shares.
In addition, as of March
31, 2021, there were outstanding warrants to purchase an aggregate of approximately 79 million shares of Common Stock at a cash exercise
price of $0.1521 per share, vested options to purchase an aggregate of approximately 5.2 million shares at a weighted average cash exercise
price of $0.13. Additional shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding warrants,
with such provisions excluding any shares issued to Lincoln Park from consideration .
As a result of the above
discussed potential issuance of securities, such issuances by us could result in substantial dilution to the interests of other holders
of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park or pursuant to the
conversion or exercise of outstanding shares of warrants, or the anticipation of such issuances, could make it more difficult for us
to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Furthermore, pursuant to
the Company’s policies relating to the compensation of Directors, 2/3 of all director fees are paid via the issuance of shares
of Common Stock, with such shares being valued at the simple average of the closing price of the Company’s Common Stock for each
day in the period for which the director fees were incurred. In addition, members of the Company’s management, certain employees
and consultants receive a portion of their salaries or compensation via the issuance of shares Common Stock, with such shares being valued
by the same method as that used for the shares issued in payment of director fees.
The issuance of these shares
is dilutive to holders of our Common Stock, and the subsequent sale of these shares, or the perception that the sale of these shares
may occur, could cause the price of our common stock to fall.
Our common stock is a penny stock, quoted
on the OTC bulletin board, with rules in place that could limit trading and liquidity of our shares, increased transaction costs that
could adversely affect our price per share.
Our common stock is a “low-priced”
security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver
a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock,
the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment
experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent
from the customer, and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the
willingness of broker-dealers to make a market in our Common Stock, will decrease liquidity of our Common Stock and will increase transaction
costs for sales and purchases of our Common Stock as compared to other securities.
In addition, our Common stock
is quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) which is a regulated quotation service that displays real-time
quotes, last sale prices and volume limitations in over-the-counter securities. Because trades and quotations on the OTCBB involve a
manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes,
may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure
of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting
and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common
Stock at the optimum trading prices.
When fewer shares of a security
are being traded on the OTCBB, volatility of prices may increase, and price movement may outpace the ability to deliver accurate quote
information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and
current prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities
may be cancelled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received,
and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may
be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of Common
Stock at the optimum trading prices.
The dealer’s spread
(the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the
OTCBB if the Common Stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper”
loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through
the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
Shareholder activism could negatively affect
us.
In recent years, shareholder
activism involving corporate governance, fiduciary duties of Directors and Officers, strategic direction and operations has become increasingly
prevalent. If we become the subject of such shareholder activism, their demands may disrupt our business and divert the attention of
our management, Board and employees. Also, we may incur substantial costs, including legal fees and other expenses, related to such activist
shareholder matters. Perceived uncertainties resulting from such activist shareholder matters may result in loss of potential business
opportunities with our current and potential customers and business partners, be exploited by our competitors and make attracting and
retaining qualified personnel more difficult. In addition, such shareholder activism may cause significant fluctuations in our share
price based on temporary or speculative market perceptions, uncertainties or other factors that do not necessarily reflect the underlying
fundamentals and prospects of our business.
The effects of shareholder
activism pursued against the Company could have an adverse material effect on our business, financial condition, results of operations,
cash flows and stock price.
Our stock price has been volatile.
The market price for the publicly
traded stock of pharmaceutical companies is generally characterized by high volatility. There has been significant volatility in the market
prices for our Common Stock. For the twelve months ended March 31, 2021, the closing sale price on the OTC Bulletin Board (“OTCBB”)
of our Common Stock fluctuated from a high of $0.10 per share to a low of $0.05 per share. The price per share of our Common Stock may
not exceed or even remain at current levels in the future. The market price of our Common Stock may be affected by a number of factors,
including, without limitation:
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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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Capital raises through sales of securities
may cause substantial dilution to existing shareholders.
Any additional financing
that involves the further sale of our securities could cause existing holders of our Common Stock to experience substantial dilution.
On the other hand, if we incurred debt, we would be subject to risks associated with indebtedness, including the risk that interest rates
might fluctuate, and cash flow would be insufficient to pay principal and interest on such indebtedness.
Issuance of shares of common or preferred
stock could make achieving a change of control more difficult.
The issuance of additional
shares of our Common Stock, including those shares issued pursuant to conversion of convertible preferred shares, or the issuance of
shares of an additional series of preferred stock could be used to make a change of control of us more difficult and expensive. Under
certain circumstances, such shares could be used to create impediments to, or frustrate persons seeking to cause, a takeover or to gain
control of us. Such shares could be sold to purchasers who might side with our Board of Directors in opposing a takeover bid that the
Board of Directors determines not to be in the best interests of our shareholders. It might also have the effect of discouraging an attempt
by another person or entity through the acquisition of a substantial number of shares of our Common Stock to acquire control of us with
a view to consummating a merger, sale of all or part of our assets, or a similar transaction, since the issuance of new shares could
be used to dilute the stock ownership of such person or entity.
We have no plans to pay regular dividends
or conduct share purchases.
We do not intend to pay any
cash dividends either currently or in the foreseeable future on our common shares. Additionally, we do not intend to conduct share repurchases
either currently or in the foreseeable future.