Elite Pharmaceuticals (OTCQB:ELTP) has made significant progress in executing on it's business plan in the past 2 years. The likelihood of Elite achieving cash flow positive by the end of 2013 is high, and will be detailed later in this article, but first a brief history of Elite Pharma and what it has taken to get to this point.
Elite Pharma was originally an IPO company and traded on the AMEX stock exchange in the 2000's. Formed to research and develop abuse resistant opioid drug products, the company had some great ideas and had achieved some very good patents for drug products, two of which it was able to assign to Celgene Corp. for a fee. http://www.elitepharma.com/patents.asp
ELTP began studies on it's patent pending, at the time, abuse resistant 2-bead technology, and was able to move through Phase 1 and Phase 2 FDA studies successfully, and at that point the money began to run out and ELTP needed a Big Pharma partner, to come in and fund the studies. With previous management leaving and the company in financial disarray, the stock price slipped below the $1 per share listing threshold on the AMEX and was re-listed on the OTCBB where it trades today. There was a lot more that happened, but history of Elite is not the purpose of this article.
As the company was almost out of cash and could have faced possible bankruptcy, exit the previous CEO, and Jerry Treppel was hired as CEO. He came onboard in 2009 with a mission to turn the company around, and to become an operating, profitable, player in the USA Drug Industry. He was previously a director at AKORN Pharmaceuticals, which has been one of the stellar success stories in the USA Drug Industry in the past few years.
Jerry Treppel's mission to turning the company around had 4 major steps.
First- New funding had to be secured to keep the company operating and for it to acquire ANDA drugs to develop and market at it's facility. This funding was accomplished with a deal with a private company EPIC Pharma, which, though dilutive, injected millions of dollars into Elite by giving EPIC essentially almost half ownership of Elite.
Second- Elite had to get some products on the market and begin to generate cash flow, which it did by marketing 4 products in the cold and allergy market, the Lodrane Products.
Third- With a large portfolio of products under development, manufacturing capacity had to be increased, therefore facility capacity was doubled by the addition of a 15,000 square foot facility to the manufacturing capacity.
Fourth- The company continues with its now patented abuse-resistant product development, and has some products in development by itself, and with some very large partners which can be seen on the product pipeline on the company website.
By early 2011, the company was hitting on all cylinders. The company had achieved cash flow positive on the Lodrane Product revenues, had a promising pipeline of new products about to launch to add to revenues, was announcing joint development partners for other new products, and the stock price had risen from .04 to .20 and the future seemed bright. However, the FDA suddenly pulled 500 products from the USA market, including Elite's 4 Lodrane products, stating they hadn't submitted adequate studies to document the effectiveness of the products, and Elite lost it's entire product line. This was a major setback, of course, and Elite shares returned back to the .04 - .05 level.
CEO Jerry Treppel, of course, was discouraged by this setback, but vowed to continue on the path he had mapped.
In 2011 Elite launched phentermine tablets and once again became revenue producing. One of the Lodrane products was also re-launched in 2011. In 2012, Elite launched Methadone, Hydromorphone (generic Dilaudid), and phendimetrazine. The FDA also gave Elite approval to market 2 new capsule forms of phentermine in 2012, but the launch of these 2 products has been delayed until March 2013 because of a shortage of API (active pharmaceutical ingredient), which has since been corrected. Finally, the FDA granted approval for Elite to market Naltrexone tablets in 2013, and the company has stated these will launch in the second calendar quarter of 2013.
This is now going to be a company with 8 drugs it is manufacturing for sale by itself and marketing partners in the USA. There are 2 more drugs (one to be marketed by Elite and one made for partner EPIC Pharma) that that are awaiting final FDA approvals. With 8 to 10 drugs selling on the USA Pharmaceutical market by year end, Elite will once again achieve Cash Flow Positive on operations. Remember, they had achieved this milestone previously with only 4 products.
So with a stock price in the .08 to .09 cent range. Why would an investor be interested in Elite Pharma? It's a penny stock.
My answer to that is that it's one of the most ethical penny stock companies ever to be found. Elite is FDA GMP (Good Manufacturing Practices) certified, and DEA registered for research and manufacturing of Controlled Substances. The company is still being operated like an AMEX company with quarterly investor earnings reports and conference calls, where any investor can call in and ask the company executives questions.
Also since the company has patents in the Abuse Resistant Opioid (NYSE:ART) market, the stated goal is for the company to develop Patented products in this multi-billion dollar market. The millions they are currently making in revenues will potentially be replaced by a hundreds of millions to billions of dollar product(s). And just the first week of March, 2013 the company has received Notice of Allowance on another ART patent, which should come to final approval in mid-April 2013.
The NOVEL asset sale:
CEO Jerry Treppel has mentioned in a conference call late last year, that the company was considering monetizing their investment in Novel Labs, a private company, that now has grown to a much larger entity. It is carried on the Elite Pharma books at its original investment value of $3,329,322 which was the 2006 price that Elite paid for 10% ownership. Well, Novel Labs now has over 30 FDA approved products, and based on speculation comparable to other public companies of that size, the value of that investment could now be from 10 million dollars to 50 million dollars. If Elite is able to get this cash infusion with an asset sale, it will be able to pay the 4 million dollars in debt it has, and also be able to fund studies on it's ART products to enable it to grow much faster than it has in the past couple of years. Investors are excited about this source of funding as it will be non-dilutive, and if it comes in near the high range of estimate, could drive the company stock price much higher very quickly, as 50 million dollars is more than the 30 million dollar market cap of the entire company at the present time.
Dilution and CEO funding
Some detractors from the company have pointed out the dilution of Elite from 100 million shares to the current 357 million shares as of the latest SEC filing on Feb. 6, 2013. This would seem high until you look at the established companies in the drug industry, and realize that the norm for established companies is billion of shares.
Here are a few examples,
Pfizer- 7.36 billion shares
Merck- 3.04 billion shares
GlaxoSmithKline-2.41 billion shares
Bristol-Myers 1.64 billion shares
Abbot Labs 1.57 billion shares
Lilly - 1.09 billion shares
Mylan - .4 billion shares
Elite Pharma - .356 billion shares
CEO Jerry Treppel is concerned about dilution, and in an extraordinary show of that concern, has loaned the company 1 million dollars cash, dilution free, from his personal funds to keep research and operations going, until either some other funding source is obtained or the Novel asset sale is completed.
So to sum up:
ELTP is now back in a position similar to early 2011 when the stock ran from .04 to .20 range. The current price near .09 reflects the current portfolio of 5 drugs already on the market, but doesn't reflect the impending launches of the next 3 drugs or the Novel asset sale.
Some catalysts for the stock to move substantially higher in 2013 will be the announcement that Elite is once again cash flow positive on continuing operations, the announcement that a BIG PHARMA partner will commence the Phase III human studies needed to market a patented NDA drug in the billion dollar ART market, and an announcement that the Novel Asset Sale has now funded the company with tens of millions of dollars.
Other positives will be the launch of drugs 9 and 10 onto the USA market later in the year, and the increase in earnings as all these products increase market share in their respective markets.
The turnaround for Elite has been a long and bumpy road, but it appears that 2013 will see major milestones accomplished which should pay off for patient investors.
Disclosure: I am long OTCQB:ELTP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.