Elite Pharmaceuticals Inc (ELTP)

[Couch]

This is Elite.

In short, our financials can be summarized as follows: Outstanding performance, strong financial position and 2 subsequent events that have been getting most of the attention. The subsequent events are obviously SequestOx and the Generic Percocet ANDA filing which we did 2 days ago. We’ve gotten a lot of emails, comments and questions on them and Nasrat will go over those in depth. We always say product development is obviously a key part of our business, but I would like to spend a few minutes going over the other key part of our business that doesn’t seem to get much attention and that’s the generic operations which by the way are the main driver of the strong financials included in our Q. So they should get more attention than they usually get.

Our last earnings call was less than 2 months and if my memory serves me correctly, I think I referred to our commercial generics, something that has quietly grown into a solid business, and this quarter is a textbook example of that.

Total revenues were up by more than 50% on a year-on-year basis. 3.3 million for this year’s quarter as compared to 2.2 million for the June 2015 quarter. 3.3 million in total revenues includes 2.6 million in manufacturing fees. You can compare that to the manufacturing fees of 1.7 million for the June 2015 quarter and that was a good quarter back then and the March 2016 quarter just 3 months ago, manufacturing revenues were 2.2 million and that was a very good quarter. So it went from 2.2 to 2.6 million from the March to the June quarter.

So on a percentage basis, manufacturing revenues are up more than 50% on a year-on-year basis and 19% when compared to the immediately preceding quarter. So that is significant, that is steady and that is sustained growth. Utilization percentage of our factory continues to climb, we’ve also hired a few more employees in the factory and in our QC lab to keep up with these growing volumes. So Elite’s growth isn’t only felt by the company and reflected in our financial statements, but there are many families that also have been positively affected by this as well and it’s always nice to see that.

Moving down the P&L statement, the notable expenses as it always is research and development. R&D cost were 1.6 million for this year’s quarter as compared to 2.4 million for the June 2015 quarter. That’s a decrease, but the decrease is really just due to the timing and the nature of the product of melamin activities compared to this year and last year. Last year we were running the trials for SequestOx which is a branded product and this year the R&D spend was mostly related to the Generic Percocet product, a much different cost profile when you’re talking about product development. And we did file the ANDA, just a few weeks after June 30th, so a couple of days ago as a matter of fact. So a tangible result was achieved pretty quickly.
But the real takeaway can be seen when comparing the full R&D cost in the overall operating profit and in our case operating loss. For the June 2016, we had an overall operating loss of $1.2 million, but that amounted less than the 1.6 million we spent on R&D for the same quarter. So, this shows that our generic operations, they are not just covering the cost, they are not just covering our overheads, but they are also subsidizing product development activities.

This is a second consecutive quarter that we have achieved this and once again this is clear evidence of the significance of our generic operations and the importance of its contribution. People that have been following us for a lot of years know that having a profitable, generic operations has always been a key plan in our strategic plan and we are performing as we have planned.

Moving over to the cash flow statement, we had a net cash burn from operations of little less than $800,000 but that includes almost $450,000 in inventory buildup. Our volumes are growing, we have to buy more materials, we have greater inventories, so this is just a normal buildup to support the growing manufacturing volumes. So the operating burn was really not material.

Looking further down the cash flow statement, it also shows that we invested another $300,000 in facility and equipment during the quarter. These are investments in our facility expansion that will enable us to support our growing volumes and business. It’s important to be proactive in this area and we are. Not enough to forecast increased volumes, we also need to ensure that sufficient resources are in place to service these volumes.
When it comes to pharmaceutical manufacturing, that takes some time. So we have to invest and we have to build now, so that the resources and the facilities will be in place and validated when we need them. So the cash flow statement is a good place to see what’s being spent in these areas and take a look and you see we invested $300,000 in this area during the June 2016 quarter.

Lastly, there is the balance sheet. Once again Elite has the strongest balance sheet it has seen. Cash was 12.8 million at June 30th, that’s up $1.3 million from the beginning of the quarter. Working capital was 13.6 million at June 30th and you can compare that to 12.1 million at the beginning of the quarter. So working capital increased nicely as well. All of this adds up to a strong balance sheet and a strong financial position, the strongest Elite has seen.

So overall to sum it up, our financials show outstanding operating results, our cash flow is under control, our R&D and facility investment continue as planned. We filed an ANDA just a couple of days ago, and we have a strong financial position which provides the resources and the resiliency to resolve the issue raised by the FDA in regards to SequestOx.