Pfizer Guidance Suggests Tremendous Potential for Pain Therapeutics

| About: Pain Therapeutics (PTIE)

This past February 8th, I published an article on Seeking Alpha on Pain Therapeutics (NASDAQ:PTIE). At the time, PTIE was trading at just over $6/share and awaiting a June 23rd decision from the FDA on its new drug application for the tamper-resistant pain drug, Remoxy. At the time, I estimated that PTIE would be worth roughly $26/share in mid-2014, based on Remoxy approval and a reasonably successful launch of the drug by Pfizer (NYSE:PFE). I also estimated that there was a roughly 75% chance that the drug would be approved.

When Pfizer and PTIE received a complete response letter from the FDA based on manufacturing issues with Remoxy, PTIE dropped under $4/share. At the time, PTIE and Pfizer claimed that Pfizer was working to resolve the issues, but that there could be no assurances that the issues would be resolved or Remoxy approved. Those were trying times for PTIE shareholders, but things have turned up considerably since then. If anything, I believe that PTIE’s risk/return profile may be even more favorable now than it was in February.

Here’s why: The value of Remoxy for PTIE upon approval is roughly the same, aside from slightly less sales time before the patent expires. Let’s say we’re now looking at roughly $22/share in early 2015, roughly 15% lower than my February estimates. But PTIE’s share price has dropped by over 20% since the February publication, so the upside opportunity is the same or better. More importantly, we no longer have to rely on my judgement as to the probability of Remoxy’s approval. Pfizer management has now publicly stated that they consider it extremely likely that Remoxy will be approved.

In Pfizer’s Q2 conference call, a Bank of America/Merrill Lynch analyst asks, “do you still view REMOXY as a when, not an if?” To clarify, the analyst is asking if Pfizer still believes that the only question surrounding Remoxy’s approval is when it happens and not if it will happen. In reply, Pfizer CEO, Ian Read states,

On REMOXY, we see it as when, not if. We're talking with the FDA. We're bringing Pfizer's manufacturing pharmacy skills to bear on that, and it'll be a question of when.

It’s difficult to quantify that sort of confidence, but I would estimate that Pfizer management believes they have at least a 90% probability of getting Remoxy approved. Based on those odds, and the >300% gains I would expect for PTIE over the next few years if Remoxy is approved, PTIE looks like a great long again.

Disclosure: I am long PTIE.

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