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MagicDiligence (< 20)

Stock Review: Pain Therapeutics (PTIE)



July 24, 2009 – Comments (1) | RELATED TICKERS: PTIE , KG.DL2

Pain Therapeutics (PITE) is a branded pharmaceutical development concern. The company is essentially hitched to King Pharmaceuticals (KG), and even more specifically to the success or failure of a single drug - Remoxy, a form of Oxycontin designed to resist chemical and physical manipulation. Let's take a look at PTIE's business model.

The company receives revenues in three categories: collaboration, program fees, and milestones. All of these payments are coming from King in a joint-venture development program for Remoxy, as well as two other earlier stage candidates who's indications are not yet known. Collaboration revenues are reimbursements from King for R&D expenses. Program fee revenues are a pro-rated accounting of a $150 million up-front payment from King at the outset of the collaboration in 2005. They amount to about $3.6 million in revenue a quarter, and will be recorded through 2014, but do not provide ongoing free cash flow. Finally, milestone payments are one-time payments from King for reaching a critical milestone, such as submission to the FDA, which PTIE received a $20 million payment for in the middle of last year.

Remoxy is a very important drug for King, potentially representing anywhere from $500 million to $1 billion in annual sales. Oxycontin is a widely used pain management drug, and at over $2.5 billion in sales in 2008, one of the top 10 selling pharmaceuticals in the world. However, due to its euphoric effects, it is also a very popular recreational drug. The standard long-release delivery method of Oxycontin is easily tampered with by recreational users, who break open the capsule to prevent the long-release method and to maximize the desired effect. The ease of tampering can also lead to accidental overdoses from those using the drug for pain, as any breaking of the capsule can lead to accidental overdose. Remoxy is designed to prevent these kinds of uses of oxycodone, the active ingredient.

Pain Therapeutics stands to collect a large financial windfall if Remoxy becomes commercially successful. The agreement with King stipulates a 15% royalty rate for the first $1 billion in sales, and 20% thereafter. At $500 million a year in sales, that amounts to $150 million in revenue for Pain Therapeutics, a 3-fold increase from current revenue levels. Additionally, PTIE still stands to collect another $125 million in milestone payments related to Remoxy's successful development.

There is a major risk, however. Remoxy was rejected by the FDA last December, and currently King does not expect to re-submit the New Drug Application (NDA) to the FDA until the middle of next year, giving them time to collect stability data. Also, approval could be pushed out even farther due to an ongoing patent dispute with Purdue Pharma, creator of the original Oxycontin. The ultimate approval of Remoxy has been handicapped at about 60-70%, not real encouraging odds. And in any case, it's a sure thing that no royalty or milestone revenues will be collected by Pain Therapeutics in the next year. Plenty of other pharmaceutical companies are developing a similar tamper-proof Oxycontin, which will push margins lower on Remoxy.

Pain Therapeutics is also one of those misleading MFI stocks. Sure, in the past 12 months the company is profitable, but only because of that one-time $20 million milestone payment last year. Without any milestone payments on the horizon, this is a company that is not profitable on an operating basis. The company has plenty of cash ($186 million) and no debt, but aside from Remoxy, there is nothing in the near term pipeline to prop up revenues. It's also possible that the collaboration agreement with King could be terminated if Remoxy is not approved, which would make it difficult for Pain Therapeutics to even operate.

With a whole slew of major risks and serious questions about the future of Remoxy, Pain Therapeutics is a lottery ticket and should probably be avoided by MFI investors.

Steve owns no position in any stocks discussed in this article.

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1 Comments – Post Your Own

#1) On July 24, 2009 at 12:02 PM, marianneskolek (< 20) wrote:

The below information is posted on Purdue Pharma's Partners Against Pain website.  To suggest that any physician(s) "distinguish between their attractive and unattractive patients" is criminal.  Let me assure you as a nurse, this is an insult to the medical profession.  I have reported Purdue Pharma to the FDA and DEA for their further marketing of OxyContin without a conscience.
Physician Attitudes Studies have shown differences in the attitudes of healthcare providers toward men’s and women’s experiences of pain. McCaffery and Ferrell, us ing a questionnaire administered to more than 300 nurses, found that most respondents believed that women, compared to men, were less sensitive to pain, more tolerant of pain, less distressed as a result of pain, and more likely to report pain and to express pain through nonverbal gestures.14 Regarding physician perceptions of female patients with pain, Hadjist avropoulos and co lleague s found that physicians distinguished between their “attractive and “unattractive” patients. At tractive female patients were perceived as experiencing less pain than unattractive female patients, evidencing a “healthy is beautiful” stereotyp e.15 Historically, the medical literature20has portrayed women as hysterical and oversensitive. By extension, physicians often view women’s statements as emoti onal, rather than objective. In one study of patients with chronic pain, female patients were more lik ely than their male counte rparts to be diagnosed with histrionic disorder, excessive emotionality, and attention-seeking behavior.16 According to an analysis of recent pain research by Hoffmann and Tarzian, women are more likely than men to seek treatment for their pain and are less likely to receive it. The authors suggest that physicians may treat women less for pain based on the presumption women can handle more pain or, conversely, that women are in fact imagining pain where none exists.17

Marianne Skolek
Activist for Victims of OxyContin and
Purdue Pharma - a criminally convicted pharmaceutical company

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