Why Did Pain Therapeutics Increase Over 25%?

| About: Pain Therapeutics (PTIE)

On April 30, 2013, shares of Pain Therapeutics Inc. (NASDAQ:PTIE) rose over 25% after Pfizer Inc. (NYSE:PFE) announced that it had met with the US Food and Drug Administration (FDA) and now has a "clear understanding" of the measures needed for Remoxy (oxycodone) to receive approval from the agency. Pfizer is partnered with Pain Therapeutics and Durect Corporation (NASDAQ:DRRX) for the development of the drug. Durect shares also rose over 25%.

Pain Therapeutics is a 162M market cap company based in Austin, Texas. The company's lead drug candidate is Remoxy Extended-Release Capsules CII, an investigational drug with a controlled release formulation of oxycodone for patients with moderate-to-severe chronic pain. Pain Therapeutics' other product candidates comprise abuse-resistant formulations of hydromorphone, hydrocodone, and oxymorphone, as well as a potential Alzheimer's disease treatment.

Pain Therapeutics, Inc. has an exclusive, worldwide strategic alliance with Pfizer to develop and commercialize Remoxy and the company's other abuse-resistant opioids, except in Australia and New Zealand where the company is looking for a partner.

Abuse-deterrent drug formulations target the routes of substance abuse, such as crushing in order to snort or dissolving in order to inject, for the specific opioid drug in that formulation. The science of abuse deterrent drug formulation is relatively new. Both the formulation technologies and the evaluation methods for evaluating those technologies are rapidly evolving.


Remoxy is an oral, long-acting oxycodone gelatin capsule formulated with Durect's Oradur technology which combines properties designed to resist common methods of oxycodone misuse and abuse.

Pain Therapeutics began the first Phase 3 clinical trial for Remoxy in December 2004. The study was comprised of over 200 patients at over 20 clinical sites. In September 2005, the company announced positive results from this trial.

In 2005, the company entered into a strategic alliance with King Pharmaceuticals to develop and commercialize Remoxy and other opioid painkillers designed to deter tampering by drug abusers. Under the agreement, Pain Therapeutics was responsible for drug formulation, clinical development and regulatory filings. Upon FDA approval, King would exclusively commercialize Remoxy and the other opioid drugs that were part of the alliance. These painkillers were developed with the Oradur platform technology licensed from Durect.

King and Pain Therapeutics initiated a second Phase 3 study that evaluated Remoxy in over 400 patients. On December 6, 2007, King and Pain Therapeutics announced that the pivotal Phase 3 trial for Remoxy had successfully met its primary endpoint. The primary endpoint was defined as a mean decrease in pain intensity scores between Remoxy and placebo during the 12-week treatment period. The trial also achieved statistically significant results in several secondary endpoints.

The alliance between Pain Therapeutics and King Pharmaceuticals involved the development and commercialization of four long-acting, abuse-resistant opioid painkillers.

In addition to Remoxy, there was Oxytrex (oxycodone with an ultra-low dose of naltrexone), another abuse-resistant opioid. Although prospects for Oxytrex looked promising, in November 2005, Pain Therapeutics reported that a Phase 3 study of Oxytrex in patients with osteoarthritic pain exceeded its target of 25% improvement in physical dependency compared to oxycodone, but the results failed to meet statistical significance due to high drop-out rates.

The alliance also included PTI-202 with an 'active pharmaceutical ingredient that remain(s) undisclosed', and a "novel radio-labeled monoclonal antibodies to treat metastatic melanoma" that were being developed, along with a new treatment for patients with hemophilia. The company abandoned all of these drugs, with the exception of Remoxy and PTI-202.

The initial new drug application (NDA) for Remoxy was filed in June 2008. The company received a Complete Response Letter (NYSE:CRL) from the FDA in December 2008. The FDA refused to approve King Pharmaceuticals' formulation of Remoxy because the agency had questions about the drug that needed to be answered before approval. King assumed full control of the development of Remoxy in March 2009 and filed a resubmission to the Remoxy NDA on December 23, 2010. Pfizer acquired King Pharmaceuticals in March 2011 for $3.6 billion, and obtained the rights to Remoxy.

The acquisition of King Pharmaceuticals bolstered Pfizer's position in the pain medicine market. In addition to Remoxy, King's drugs included Avinza (extended-release morphine sulfate), and Embeda (extended-release morphine sulfate/naltrexone). Embeda was the first FDA approved opioid designed to discourage misuse and abuse. King spent $1.6 billion to acquire Alpharma and acquire the rights to Embeda, which received FDA approval in August 2009.

The addition of tamper resistant opioids in King's portfolio represented a significant opportunity for Pfizer, especially since opioid abuse was being increasingly recognized as a public health problem in the United States.

On January 27, 2011, Pain Therapeutics announced that the FDA had accepted an NDA resubmission for Remoxy which the company called a "controlled-release" rather than an "extended release" oxycodone and has classified it as a Class 2 resubmission. With the Class 2 designation, the FDA set a corresponding Prescription Drug User Fee Act (PDUFA) goal date of June 23, 2011. Pain Therapeutics received a $5 million milestone payment as a result.

Since Pain Therapeutics was now partnered with Pfizer, the largest pharmaceutical company in the world, some thought Remoxy had a much better chance of receiving FDA approval, but in June 2011, the FDA refused to approve Remoxy again.

The FDA's CRL raised concerns related to the Chemistry, Manufacturing, and Controls section of Remoxy's NDA, along with a number of other issues. Certain drug lots showed inconsistent release performance during in vitro testing due to the testing method or a manufacturing deficiency. The company's news release stated that, "in the opinion of Pain Therapeutics, potential regulatory approval of Remoxy in the U.S. is unlikely to occur in less than one year, and could be delayed significantly longer than a year."

Since 2011, Pfizer has conducted complex investigations on Remoxy, including several pilot pharmacokinetic studies to assess modifications to the Remoxy formulation. Some considered Pfizer's March 28, 2013 meeting with the FDA to be of crucial importance for the future of Remoxy.

In its First Quarter 2013 financials release, Pain Therapeutics implied that Pfizer's meeting with the FDA was positive, stating, "Based on Pfizer's extensive understanding of Remoxy, we believe Pfizer has developed proposals to address all of the concerns outlined in the June 2011 Complete Response Letter. Pfizer met with the FDA in March to discuss these proposals, although the company has not received minutes of Pfizer's recent meeting with the FDA."

The FDA did approve Pfizer's abuse-resistant, immediate release opioid pain product, Oxecta (oxycodone). Oxecta's tamper resistant formulation was developed by Acura Pharmaceuticals (NASDAQ:ACUR).

In 2010, the US Centers for Disease Control and Prevention (NASDAQ:CDC) reported that opioid analgesics were involved in about 3 of every 4 pharmaceutical overdose deaths.

Some believe tamper resistant formulations could reduce opioid abuse by 65%.

A major study published in the November 2012 issue of the Journal of Pain reported the results of a sentinel surveillance sample of 140,496 individuals assessed for substance abuse treatment at 357 treatment assessment centers across the United States between June 1, 2009 and March 31, 2012. Researchers examined extended release oxycodone abuse before and after tamper resistant extended-release oxycodone was introduced. Significant reductions were observed in eight outcome measures of tamper resistant extended-release oxycodone versus the original extended release oxycodone.

Other Drugs In Development

Pain Therapeutics believes that the abuse-resistant technology used in Remoxy is applicable to different oral opioid painkillers. Its strategic alliance with Pfizer includes development of three other abuse-resistant opioid product candidates: hydromorphone, hydrocodone and oxymorphone.

The company's abuse-resistant formulations of hydromorphone and hydrocodone have completed Phase 1 clinical trials. These Phase 1 clinical trials were designed to investigate the safety, tolerability, pharmacokinetics and pharmacodynamic profile of a single, oral dose of the drug candidates in healthy volunteers.


On July 18, 2012, Pain Therapeutics announced the publication of preclinical data with respect to a new approach to treat Alzheimer's disease (AD). The publication also suggested the usefulness of its approach to develop a noninvasive, blood-based biomarker and clinical diagnostic for Alzheimer's disease.

AD patients suffer from progressive and irreversible cognitive impairment that is widely believed to be caused by a protein called beta-amyloid. Scientists at City University of New York Medical School and Pain Therapeutics found that a novel compound, PTI-125, can dramatically suppress the toxic effects of beta-amyloid. Results were demonstrated in a mouse model of AD, and remarkably, in brain tissue from deceased Alzheimer's patients.

Beta-amyloid is widely believed to be a primary causative agent in AD. Existing therapeutic candidates mostly focus on clearing out beta-amyloid from the brain. In contrast, this research demonstrated a novel method to block the toxic effects of beta-amyloid by using a small molecule, which New York Medical School and Pain Therapeutics scientists designed, called PTI-125. PTI-125 binds with very high affinity to a novel target critical to beta-amyloid's toxicity. In doing so, PTI-125 disrupts beta-amyloid's toxic signals, expels existing beta-amyloid from alpha7-nicotinic acetylcholine receptors (α7nAChR) and reduces beta-amyloid-induced inflammation. PTI-125 is in the preclinical stage of drug development.

These novel findings suggested that PTI-125 may improve cognition and protect against the toxic effect of beta-amyloid in neurons, raising hopes for a treatment to combat cognitive decline in AD. The study also discussed the usefulness of this new approach to develop a noninvasive, blood-based biomarker and clinical diagnostic for AD.

Pain Therapeutics owns worldwide commercial rights to PTI-125 and related technology.


Pain Therapeutics has received $185 million in program fees and milestone payments under its strategic alliance with Pfizer. The company is also eligible to receive up to an additional $120 million in clinical/regulatory milestone payments, including a $15 million payment from Pfizer if the FDA approves Remoxy.

Upon the commercial launch of Remoxy. Pfizer will pay Pain Therapeutics a 15% royalty for the first $1 billion in Remoxy sales, and a 20% royalty of net sales in the United States that exceed $1 billion. Outside the United States, the royalty rate is 10%.

Pfizer will also pay Pain Therapeutics a supplemental royalty fee payment of 6% to 11.5% of net sales, depending on the range of total dollar sales in each year. This supplemental payment is equal to the full amount of Pain Therapeutics' financial obligations to Durect, the company's exclusive supplier of certain excipients (pharmacologically inactive substance used as a carrier for the active ingredients) in Remoxy.

Pain Therapeutics development expenses for Remoxy and three other abuse-resistant pain medications that are in various stages of development, including hydrocodone, hydromorphone and oxymorphone, are reimbursed by Pfizer.

On April 30, 2012, Pain Therapeutics reported financial results for the quarter ended March 31, 2013. The company's net loss for Q1 2013 was $408,000, or $0.01 per share in Q1 2013, compared to a net profit of $30,000, or $0.00 per share in Q1 2012.

Cash and investments were $54.4 million at March 31, 2013. The company continues to expect net cash usage for the first half of 2013 to be under $5.0 million. Pain Therapeutics has no debt.

Research and development expenses decreased to $1.2 million in Q1 2013 from $1.6 million in Q1 2012, primarily due to reduced headcount. Non-cash stock related research and development expenses decreased to $0.3 million in Q1 2013 from $0.5 million in Q1 2012.

General and administrative expenses decreased to $1.2 million in Q1 2013 from $1.5 million in Q1 2012, primarily due to reduced operating costs. Non-cash stock-related general and administrative expenses were $0.4 million in both Q1 2013 and Q1 2012.

Pain Therapeutics lost $3.4 million in 2012, or $0.08 per share, compared to a net loss of $2.6 million in 2011, or $0.06 per share. At December 31, 2012, the company had cash and equivalents of $56.3 million. At December 31, 2012, cash and equivalents were $56.3 million. The Company has no debt. Management expects net cash usage for the first half of 2013 to be under $5.0 million.

Conclusion: Buy

Since Pain Therapeutics is expecting important regulatory decisions about Remoxy in 2013, its corporate strategy is to spend modestly and "to keep innovation at the top of our agenda." The company has only eight employees.

There has not been a significant amount of analyst coverage of the company, nor has it been particularly positive. On April 19, 2013, Pain Therapeutics was downgraded by Zacks from a "Neutral" rating to an "Underperform" rating. Zacks has a $3 price target on the stock. On November 1, 2012, C.K. Cooper downgraded Pain Therapeutics from "Buy" to "Hold. On March 30, 2011, BofA/Merrill Lynch initiated coverage on Pain Therapeutics with a "Buy" recommendation and a $12 price target. On June 30, 2011, Gabelli reiterated its "Buy" rating for Pain Therapeutics with a $6.50 price target.

I predict a positive future for Pain Therapeutics.

According to previous Datamonitor estimates, Remoxy could achieve peak annual sales of over $400m in the United States. Pfizer has highlighted pain as one of its key focus areas, as evidenced by its $3.6 billion acquisition of King Pharmaceuticals. It already markets such big sellers as Lyrica (pregabalin) and Celebrex (celecoxib), as well as having the most extensive pipeline in the pain sector. Remoxy fits nicely in its pipeline.

Although opioids analgesics are important pain medications that are widely prescribed for both non-cancer and cancer-related pain, there has been a significant amount of media coverage about the risk of addiction, overdose and death associated with these drugs. More than 15,500 people died in the United States in 2009 after overdosing on narcotic pain relievers, representing a 300% increase over the last 20 years. For each death, there are an additional 10 treatment admissions, 32 emergency department visits and 825 non-medical users of these drugs.

The FDA has made it clear that the agency is extremely concerned about the inappropriate use of opioids.

Combating opioid misuse, abuse, and addiction has long been a priority for the FDA, and the FDA has taken steps to address this problem.

One important FDA effort in reducing abuse and misuse is encouraging the development of opioids that are specifically formulated to deter abuse. The FDA considers the development of abuse-deterrent formulations to be a public health priority and is encouraging their development.

Now that Pfizer has a "clear understanding" of what is needed to ascertain FDA approval, I think it is likely the necessary steps will be taken to ensure that Remoxy is approved. I think the drug will not only prove to be a lucrative asset for Pfizer, Durect, and Pain Therapeutics, but also advance an FDA priority for the development of opioid drug formulations that deter abuse.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.