Here's What Really Happened To Elite Pharmaceuticals Inc (OTCMKTS:ELTP)

Elite Pharmaceuticals Inc (OTCMKTS:ELTP) just picked up a complete response letter (CRL) from the FDA relating to its lead abuse deterrent opioid candidate, and is taking a beating on the open market as a result. Heading in to the Tuesday morning open in the US, the company is down 40% on its July highs. On Monday, the company took to a conference call to explain the CRL, and on the call suggested there's still a chance of approval for its candidate, SequestOx. Is this just spin, or can Elite recover? Let's try and figure it out.First, a quick introduction to SequestOx. As mentioned, its an abuse deterrent opioid treatment designed and developed with Elite's abuse deterrent platform. Basically, it’s a pill with two components – an opioid agonist and an opioid. If taken correctly, the opioid agonist passes through the body with no effect. If crushed or dissolved, however, the agonist binds to the same receptors as would the opioid, and essentially nullifies the impact of the latter. Some good news first – the CRL didn’t mention any issues with the tech, so we know the agency is happy with the abuse deterrent element of the drug. That's pretty big news in itself.So what happened? Well, in pharmacology there are two measurements called Cmax and Tmax that relate to how the drug moves through the body. The first relates to peak concentration (so basically, how strong the drug is) and the second to how long it takes for the drug to reach this peak concentration. When taken with fatty food, the Cmax of SequestOx is the same as when taken with no food or a light meal. However, Tmax is higher. This means it takes longer to hit peak concentration. This means a patient could take the drug, expect a certain level of relief, but not get it because of the higher Tmax. In response, the patient could take another pill, and theoretically overdose. Elite knew this when it submitted the NDA (it had conducted trials that demonstrated this effect) but it believed that it could resolve the issue with labeling. Specifically, a note on the packaging saying don't take this with fatty food, that sort of thing. However, because the drug is designed for on demand pain relief, the FDA isn’t happy with this solution. If the drug was designed for chronic pain, this isn’t an issue, because a patient can plan to take the drug before eating. Since it's a responsive administration, however, they cannot plan.So what's the outcome? Elite believes that if it can demonstrate no difference in Tmax when sprinkled on a fatty meal, then the FDA will accept that as a resolution and approve the drug with a label explaining this dosing method. It's going to the FDA over the coming weeks with this proposal, and if the agency agrees to the resolution, we should see a trial kick off this quarter. Then, all eyes will be on the topline and – specifically – the Tmax data.All this assumes, of course, that the agency accepts the sprinkling as a resolution. This author believes that doesn’t really overcome the issue. Why? Say a patient eats a meal, then gets pain 30 minutes later. Chances are the Tmax is still going to be affected by said meal, but the patient has missed the chance for sprinkled administration. Anyway, we'll see what the agency says come meet day.If it accepts Elite's proposal, this could be a really great opportunity to get into the stock at a discount. As mentioned, the CRL validates the tech underpinning the drug, and there is a raft of other biosimilars in its pipeline poised for submission.Keep in mind that markets sold off on the company before the CRL was explained – a great example of inefficiency. Inefficiency can serve up opportunities in this sort of situation.Definitely one to keep an eye on.Stick with us for ELTP updates by subscribing to our newsletter using the box below.Disclosure: We have no position in ELTP and have not been compensated for this article.