Timing is key in all things. My decision to take a break at the point of a Quarterly Conference Call may not have been the best timing. But, since I never sold shares, my timing might be an issue. Nonetheless, I would like to offer a few points to ponder:
The opioid pain med market, which has been described as large but undefined by a specific number acceptable to everyone, was identified as about a 10 billion dollar market by Nasrat and, of that, he would be thrilled to capture 1 billion dollars in annual revenues. One would argue that, with the potential of multiple ART/ADT opioids, the market capture would exceed 10 percent, at least for some period of time. This gets to a few key points: a) no one has significant market share utilizing an ART/ADT; b) the introduction of a new product into the market can be difficult because there is a need to educate the consumer. In this case, not only patients but also healthcare workers. When an industry giant, as is Pfizer, has one such product that is already approved, they have both the incentive and capabilities to effectively educate and sell the product and, thus, capture a larger percentage of the existing market. As Nasrat said, this is not a detriment but a benefit. We can go through a range of companies and products and see evidence of exactly that. When the vaunted Apple machine developed the first smartphone (the iPhone) they had to educate the public and battle the carriers. Why? Because at the time of the smartphone introduction cell phones were viewed as commodities, to be used for one purpose and, as such, price carried the day. With the introduction of the iPhone, the smartphone category moved from commodity to a highly differentiated product in a market that today has many competitors. This is exactly what the ART/ADT meds will do to the opioid pain med market as, there are few analog cell phones in existence, so it shall be for non-ART/ADT products in the opioid pain med market. But, it does demand that Elite develop one of two things: the marketing/sales capabilities, which requires a significant investment in talent and resources, or they partner with a big someone. While Nasrat the negotiator (which is what this is about) says he has not decided, I cannot help but believe that Nasrat realizes that the cheaper AND more meaningful approach (from a media and investment awareness perspective) would be to partner with a big pharma firm. This we can discern from the words he spoke on the call. To be certain, this move, combined with the FDA approval of their protocol, would vault the p/s forward. And, to be certain, given the planning necessary, it is doubtful Elite would wait until completion of the P-3 and filing for such a decision. A partnership would need to be consummated beforehand.
The question about how Elite would elevate its p/s sufficiently to gain membership to the Nasdaq was instructive because the question did not offer answers, it required Nasrat to fill in the blanks, which he did. Nasrat responded by saying exactly what we investors want to hear, organic improvement in revenues, through generics but most importantly 1-2 NDA filings and approval for its ART/ADT tech would enable the p/s to qualify for the Nasdaq (to that I say, perhaps). He did, however, also include the potential for a reverse split. While we can all interpret it differently, it told me that, come hell or high water, he was focused on uplisting to the Nasdaq. But, that is one scenario that involves a more prolonged effort of developing, marketing, and selling products (with or without a partnership). One more point about qualifying for the Nasdaq…Nasrat said they have employed a firm to get them Sar-Box compliant. True, this would be important to get to the Nasdaq. But, it would also be important for their being acquired.
Which brings me to the point he made about why a valuation was done. Many have questioned the veracity of the claim that the valuation had been completed; arguing it was an effort to pump the p/s (an unrealistic claim, given the potential legal issues it would create for Elite and Nasrat). Nasrat identified the genesis of the valuation and that it was a legal demand of them for a couple of reasons. As I said before, there should be no doubt of it, as it is all too easily verified. What was important is that he suggested another valuation would be done. Why? To what end does Elite really need such a valuation? The answer is (stop me if you heard it before) – a buyout. Only, this time I hope if they conduct a valuation they either do not mention it or do not provide the lowest p/s parameters and, instead, merely give an average. The reasons for this should be obvious.
This brings me to my summation. If you have read what I have written before, you will know that I believe Elite will be acquired. Nothing has changed my mind. The pharma environment, the competitive market opportunity, and the low cost of capital are compelling reasons that argue for that to occur for any firm with unique capabilities. So if a big pharma firm believes they see enough from Elite, as indicated by various milestones, they will seek to acquire them. However, given the pending P-3 and subsequently delays, my belief is that this will not happen in the time frame I had previously suggested. If you recall, I said, with an NDA filing in December 2014 and approval on an expedited time frame by mid-summer, an offer would be made to acquire them by 3rd Quarter 2015, with the deal being completed in early 2016. Based on the current events, this time frame is not likely. So, there is a new time frame and how it unfolds is dependent upon the FDA acceptance of the P-3 protocol and subsequent start and completion of the P-3. To be certain, there is little question Nasrat cannot sell stock without causing a negative response and collapsing the p/s (even further). He knows that and he also knows there is a point to which he can build the company and strike the best deal for shareholders. To me, this may be his most challenging test as CEO. Selling the company too soon is as bad as too late. He has to find that tipping point. But sell it they will.
AI
