Elite Pharmaceuticals Inc (OTCBB:ELTP) On A Winning Spree
Back in April 2009, Elite Pharmaceuticals Inc (OTCBB:ELTP) decided to voluntarily delist their stock from AMEX. According to the press release, the process of transferring the ticker to the OTC Markets was a crucial step in reducing the costs that have been tormenting their financial statements for quite a while.
Many things have changed since then. New products have been launched, additional sources of revenues have been established and over the last couple of months, the activity around the company has been particularly intense.
A $10 million financing deal with an entity called Lincoln Park Capital Fund is now in place, which allowed them to close an asset purchase agreement with Mikah Pharma LLC. As part of the deal, industry veteran, Nasrat Hakim, took over the position of CEO (with an annual salary of $350,000) and with him, he brought a total of twelve products that have already gone through the FDA approval process, as well as one more that is under review at the moment.
Last Wednesday, a press release announced the first shipments of the Naltrexone Hydrochloride 50mg tablets and reminded shareholders and investors that more products will be released soon. This gave the ticker an additional boost and it turned the upward trend into an outright rally meaning that in just three sessions, ELTP managed to add nearly 50% to its value. On Friday, the ticker registered its 52-week high of $0.168 and finished the day around the $0.16 mark shifting more than 8 million shares. On the whole, people seem really excited, but what are the risks of putting your money in ELTP?
Well, that largely depends on whether you are a long-term investor hoping to see the ticker grow over the next months or even years, or whether you just want to make a quick an easy profit by day trading the stock.
If you are in for a quick flip, there are some things to be worried about. For a start, ELTP already logged four consecutive green sessions and a correction seems inevitable in the coming days. What’s more, at Friday’s close, the market cap stands way above the $60 million mark which, we reckon, is a bit of a stretch for a company that has a negative working capital of around $3.5 million and an accumulated deficit of $127 million.
If, however, you have strong trust in the management team and high expectations about the upcoming products, you might want to consider some other things as well. As we mentioned in our first paragraph, the voluntary delisting from AMEX was explained as a cost-cutting measure. Yet, when you check out the financial statement contained in the latest 10-Q, you’ll see that the period ended with $975 thousand in loss of operations. The report does sport a net income, but it is due to a change in the fair value of warrant derivatives and ELTP themselves say that they don’t expect to achieve profitability during the current fiscal year.
Potential problems with the FDA could also cause trouble, as Affymax, Inc. (OTCMKTS:AFFY)’s chart on the right shows and, on the whole, while the portfolio of already established products does present itself as a sign of long-term potential, ELTP carries virtually all the risks associated with small cap pharmaceutical companies. Whether you’re ready to take them or not, is up to you, but doing your due diligence and carefully considering all the options could save you quite a lot of headaches in the long run.
Other notable OTC runners from Friday include Alkaline Water Company Inc (OTCBB:WTER) who are struggling to shake off the effects of the $3 million pump and Media Analytics Corp (OTCBB:MEDA) who registered their fourth green session in a row aided by one of the most expensive promotions in Pennyland. Luckily for ELTP‘s shareholders, their stock is currently not the subject of paid touting and we’re quite sure that they want things to remain like so.
