Wacky trading indeed in Pain Therapeutics stock Thursday.  As faithful THCB readers know I’ve been in this stock for some time. They have two parallel phase 3s on the first of their potentially huge drugs– Oxytrex, a replacement for Oxycontin.  In the phase 2 Oxytrex  did better on pain control than generic oxycontin (oxycodone).  In the phase 3 it did only as well (or slightly better depending on how you interpret it) BUT it showed lower side effects. The stock would obviously have been much better today if it had done better on pain (the primary end point) and on the news the stock sold off from $6 down to about $5.20.  But over the course of the day people started looking at the side-effects — particularly proxies for addiction — and the stock came back to where it started.

Of course oxycodone is already pretty good at dealing with pain, as any hillbilly heroin addict knows, so the FDA’s decision is probably as dependent on the side-effects as it is on the pain reduction effects of Oxytrex. In that way it’s an improved me-too. But many successful US drugs are improved me-toos (anyone for Lipitor?) and reducing the addictive properties of opiates would be  a substantial improvement in the real world of DEA crack-downs on doctors.

It’s the addiction story that has been the key all along, as the drug binds a molecule to the opiate that has shown it to be less addictive in rats. That’s hard to test in humans, but they got a finding which suggests that it’s working in this trial. If it does OK (i.e. no negative surprises) in the next phase III then I think they’ll get FDA approval at the end of the year.  I’m surprised that the stock hasn’t gone up alot more on this news — but even if it’s a moderately successful drug which gets 25% of the market for OxyContin (now $1.5bn), that’s revenues of 3-400m a year for a company with a market cap of less than 300m with 100m in cash.  That should translate to a market cap of $1-1.5bn or a stock price of 30-50.  So the market is confused, but I think the downside is low from here — and Pain Therapeutics has TWO more drugs in phase 3!

I still think this stock eventually will be a barn burner, but it  definitely would have been better for us poor shareholders had it shown better performance on the pain metric v oxycodone. Of course Oxycontin will come off patent soon and the revenue size of the market will fall, but Oxytrex looks like the logical replacement to me. I still think anyone who got some at 5.20 this morning will be very happy.  I have a bunch lower than that but I’ve been here since 1999 and I ain’t leaving yet!