Healthy Skepticism Library item: 7191

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Ayoub HS.
Pain Theraputics: Is It Worth The Risk?
Yahoo Finance 2006 Nov 21
http://biz.yahoo.com/seekingalpha/061121/21029_id.html?.v=1

Abstract:

H.S. Ayoub submits: These days it seems doctors have more to worry about than practicing medicine. One big issue, other than lawsuits of course, is the increasing number of drug abusers jumping from one doctor to the next seeking the wonderful effects of oxycodone, one of the best painkillers around.

The euphoric highs experienced when taking oxycodone can be addictive to a certain number of susceptible patients. But doctors have little choice, as some of the most popular pain killing formulations on the market include oxycodone or some variant of it.

This is where Pain Therapeutics (NASDAQ: PTIE – News) hopes to hit it big. The company’s lead drug candidate is Remoxy, which includes a reformulation of the active ingredient in oxycodone that has been shown to have substantially lower addictive effects.

Remoxy is currently in phase III trials, and chances look good that the FDA will approve the drug for the market. An FDA decision could come as soon as 2007. The catch, and there is always a catch, is that Pain Therapeutics will have to show that Remoxy has a statistically higher pain killing effect than oxycodone.

The phase III trial is critical. In essence, investing in Pain Therapeutics for the near future is betting on that one trial’s results. The company’s FDA approval history is, no pun intended, painful. In 2005, one of the company’s phase III trials for a drug treating irritable bowel syndrome failed to meet one of the FDA’s primary endpoints.

I usually do not like such risks. None of BHI’s stock picks so far have been unproven biotechs with significant interest in clinical trial results. But Pain Therapeutics tempts me a little for various reasons.

The company has over $200 million in cash and no debt as last reported by Yahoo!Finance. A large part of that cash is the first $150 million payment received from King Pharmaceuticals (NYSE: KG – News) as the two companies entered into a collaborative agreement to co-develop Remoxy and other pain killing opioid alternatives. King will owe Pain Therapeutics $400 million in upfront payments and royalties pertaining to the development of Remoxy.

Oxytrex is the second phase III drug candidate being investigated as a treatment for chronic pain, such as osteoarthritic and lower back pain. In a recent phase III trial patients reported over 50% less dependence on Oxytrex as compared to oxycodone.

Company insiders hold 33% of the outstanding shares, and have been continually buying shares since April of 2005, which is a huge sign of confidence and one parameter that is critical when evaluating biotech stocks.

Back in October, Jason Shade, writing for SeekingAlpha.com, and Brian Lawler, for Motley Fool, both made their cases for Pain Therapeutics. Mr.Shade especially did a great job pointing out that shares of Pain Therapeutics could be trading at 4x the current price levels if Remoxy alone is approved.

Just recently the company announced it had found a novel way of altering metastatic melanoma using antibodies. The company intends to enter clinical trials in 2007, thus adding to its already impressive pipeline.

So, is Pain Therapeutics worth the risk? Well, keeping in mind the previous failure in 2005, we need to be a little cautious. But Remoxy’s chances of approval look good, and coupled with all the other reasons mentioned I would not hesitate to recommend the stock as a BHI Stock Pick, albeit with a smaller position.