Here's Why We're Bullish On Elite Pharmaceuticals Inc (OTCMKTS:ELTP)

Last month, we covered the market response to the complete response letter (CRL) issued to Elite Pharmaceuticals Inc (OTCMKTS:ELTP) by the FDA following its NDA for SequestOx. For those that missed the piece, the gist of it was that the issues in the CRL were unexpected, and pretty easily resolvable. The primary issue related to fatty food administration and the potential for overdose, something that is generally always sorted by labeling in the opioid space. Elite had preempted the issue and submitted data to support its application on expectations of said labeling resolution.The company collapsed on the CRL, falling from circa $.35 a share to end of July lows of $.15 – a close to 60% decline on the outcome. We suggested that this collapse was an opportunity to get in at a discount ahead of a resolution, and subsequent approval. Since we made this suggestion, the company is up nearly 50%. It's not done yet, however. There's more strength in this one, and as time passes, we think more and more speculative eyeballs will rest on the fundamentals, and capital will flow in in anticipation of a successful re-submission.Why are we so sure?First up, data shows that across all BLA/NDA submissions that receive a CRL, the chances of submission post response rise from 50% to just shy of 75%. This is across all types or response – in the grand scheme of things, Elite's response should be easily resolvable, which suggests its chances of a green light come re-submission are far higher than 75%.Specifically relating to SequestOx, however, the drug is targeting a massive unmet need in one of the most active (politically, scientifically and legally) sectors in the US. Opioid abuse is a huge problem, and there are currently very few options available to physicians when it comes to prescribing abuse deterrent drugs.CEO Nasrat Hakim said on the latest earnings call (first quarter, 2017) that in the three weeks subsequent to the issuing of the CRL, the company had run a multitude of in-vivo tests with SequestOx investigating the Tmax issue we described in the previous coverage. Here's what he had to say:

"We have 3 proposals for the FDA to evaluate that would reduce or eliminate the Tmax delay."

So this suggests that the company already has a solution to the problem. Not one, but three. The FDA has to agree that one of these solutions resolve the issue, of course, but for Elite to come up with three possibles in such a short amount of time is a sign that there's a hurdle, but it's not insurmountable.Finally, there's a whole other side of Elite that markets are totally ignoring – its generic space. The company took a bit of a hit when the FDA said that it wouldn’t be able to pick up favorable abuse deterrent labeling for its generic Percocet product. Subsequent to this, however, Elite decided to go for a standard label approval based on a cost benefit analysis. The target market is $700 million, and there are currently eleven approved generics competing for share. If it picks up an approval, Elite's product will be vying for revenues with these competitors, but it doesn’t need a big piece of the pie to change its fortunes dramatically. A 2% share would double the company's revenues.This is just one of six generics Nasrat wants to submit for approval over the next eighteen months. He's targeting one submission a quarter. Again, some of these might be getting into crowded markets, but at it's current valuation, Elite doesn’t need much penetration for it to look like a completely different company. This generic strategy formalized with the announcing of an agreement with SunGen Pharma LLC earlier this week. The agreement sees the two combine forces to develop and commercialize four generic pharmaceutical products (two CNS and two beta blocker indications), two of which SunGen will market and two of which Elite will market. The combined market for these products exceeds $3 billion.The bottom line here is that Elite is trading for pennies, generates a few million a quarter in revenues and has a very low market capitalization. However, with a small capital outlay across a period of 18 months, it could have six more generics in its portfolio targeting combined markets of more than $4 billion, and with any luck, an IR abuse deterrent opioid ready for marketing. The latter is begging for a big pharma partnership, but even without this, it will transform the company. Management is actively working towards uplisting to NASDAQ with – to quote - as much organic growth as possible and minimal stock split.We're bullish on Elite. Stick with us for more of these types of picks going forward – subscribe to our newsletter below.Disclosure: We have NO position in ELTP and have NOT been compensated for this article.