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Elite Pharmaceuticals - March Towards Abuse Resistant Opioids

|About: Elite Pharmaceuticals, Inc. (ELTP), Includes: ACUR, AGN, HITK, PFE

About 10 months ago, Jerry Treppel, the CEO of Elite Pharmaceuticals (OTCQB:ELTP) made the following comment on a quarterly conference call:

"My vision is to create a line of abuse resistant opioid products using our patented technology. Push comes to shove, that's where the value -- the true large value of the Company is in the creation of that line of abuse resistant products. Nobody in management is working to see this Company grow by million-dollar increments."

On the surface looking at this company, one might be inclined to think, how can this be plausible, let alone possible? At that point in time, the company had barely any cash flow, a couple relatively new FDA approved drugs, little cash, and a financing deal signed but hadn't come to fruition. Perhaps this was CEO speak? After all, this is a potential twenty billion dollar market and Elite currently has a market cap of about 25 million dollars.

Well sometimes you have to dig a little deeper to differentiate truth from reality. CEOs say things all of the time. Is it possible Elite Pharmaceuticals could launch an abuse resistant product let alone a line of abuse resistant opioids? Well with a little research, it has become apparent to me that not only is it plausible and possible, it looks like the CEO has the company positioned to deliver on that vision.

Elite is not a new player to this market. On the contrary, this company has been pursuing abuse resistant opioids for over 10 years. This company used to trade on the AMEX but poor business decisions, little cash flow and with the downturn in the economy the company was on the brink of bankruptcy. But new management, rapidly adding drugs and partnerships and revenue streams has them to almost breakeven from operations. With 7 drugs on the market, 3 launched in the past four months one more due to launch soon and increased demand on the current products, Elite is growing rapidly. There are additional partnerships with Mikah/ Actavis (NASDAQ:ACT), Hi-tech Pharmacal (NASDAQ:HITK), Epic and others on generics and branded products in various stages. Elite also owns 10% of a fairly large Pharmaceutical company named Novel Labs.

Elite is about to receive a second patent for their abuse resistant technology. They received a patent last May for their formulation and polymers used to sequester Naltrexone. This patent expands the IP into methods of making a drug abuse resistant. They also have other patents pending to continue to expand their IP in this space.

In the recent FDA guidelines, the FDA notes the antagonist/agonist approach to abuse resistance. This works by combining the agonist(Opioid) with an antagonist (Naltrexone) in such a manner that the drug cannot be tampered with, without releasing the Naltrexone.

Naltrexone fills the same receptors in the brain as does the Opioid. If an abuser crushes the pill up, the Naltrexone is released which negates a sense of euphoria and may even cause mild withdrawal symptoms. It is not abuse deterrent, it is abuse resistant because crushing it and snorting it or injecting it will not get you high. It is called the pharmacological approach.

This is the same general concept used by Pfizer (NYSE:PFE) with Embeda (Abuse Resistant Morphine) and ALO-02 (Abuse resistant Oxycontin). However Embeda was recalled and ALO-02 is in various stages of studies. These formulations rely on coating the agonist layer over a core of Naltrexone. Creating a stable product here has been difficult and based on the concept, it seems to be problematic to layer various seal coats, coatings and polymers over a core of Naltrexone in a manner to have a stable product.

Last week, the FDA ruled that there cannot be generic versions of Oxycontin unless it is an abuse resistant/deterrent formulation. This was a victory for Purdue and Acura (NASDAQ:ACUR) and a victory for companies developing these types of formulations. However the FDA chose their words carefully in describing what Purdue had actually accomplished.

"While both original and reformulated OxyContin are subject to abuse and misuse, the FDA has determined that reformulated OxyContin can be expected to make abuse by injection difficult and expected to reduce abuse by snorting compared to original OxyContin,"

The FDA is correct but note the language they chose. "Expected to make injection difficult" and "reduce abuse by snorting compared to the original". Purdue's product is more difficult to abuse. However, you can find instructions on the internet on how to defeat the abuse mechanisms. This allows these pills to now be snorted or injected. However, there have already been deaths and visits to the emergency room as drug abusers injected this product and experienced severe health issues. Making drugs a little harder to abuse is not going to stop a drug addict where pills of Oxycontin have seen street values of up to $80 a pill.

Elite's approach is to create a capsule combining beads of the agonist and beads of the antagonist. These are small, indistinguishable from each other and exhibit the same physical characteristics. The patents Elite has received cover their unique discovery of certain polymers and formulations used to sequester Naltrexone in this two bead concept. The Naltrexone passes through the body undisturbed while the agonist relieves pain.

In 2007, Eli 216 passed Ph1 and Ph2 for a once a day and twice daily Oxycontin product and had an SPA with the FDA for Ph3. If anything, Elite was a little early to the party. Sometimes the innovators in a market miss out because the demands for their ideas were not required, apparent and fully recognized at the time they were ready to deliver. Thanks to the vision of Epic Pharma, Elite managed to hang on and are positioning themselves to reap the benefits of all the R&D, time and money spent in developing these products all those years.

However, this is not about Oxycontin specifically. The company is working on multiple products and one product is just about scaled up and ready to go into human trials to submit for approval. This has been pending financing. The company has noted that for competitive reasons, it may be that they do not release study results until a major event like a partnership or approval. For investors this is frustrating because the size of the market and product name would garner serious attention to the stock. However, the company is looking long term and protecting that "line of abuse resistant opioids".

The company just received a 10 million dollar financing deal. The President of the company noted that they could trial up to three products with a few million dollars. CEO Jerry Treppel notes:

"It's interesting to me that someone who worked on Wall Street for 25 years and disparity in valuation between companies like Elite and other companies involved in development of abuse-resistant products like Pain Therapeutics, Acura, what it says to me is that, the investment community doesn't really believe us yet, but these products are going to be real. Well, there is lot of people in this company including myself and Chris and Carter, and our Chief Scientific Officer who have been paid a significant amount of stock because we do believe that. And that market has developed in a way enormously to our advantage, and we think we have an officious technology that is in a lot of ways superior to approaches that other companies are taking."

Disclosure: I am long OTCQB:ELTP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long on ELTP and plan on holding until many of the items are reached. The floor on this company is a profitable drug company and the ceiling is a major player in the Abuse Resitant Opioid market.