Those of you hanging out here for a while know that I’m a long term holder of Pain Therapeutics stock. The pitch is that it has three drugs in phase III trials, one for pain, one for IBS and one a non-alterable version of Oxycontin. the stock went public at 14, it usually trades between 6 and 9, and I bought a boatload at between 2 & 4 in the dark days of late 2002/early 2003.
Now I’ve been hanging on for the last of two phase III trials of its star drug Oxytrex, which is supposed to be a non-addictive version of Oxycodone (the active ingredient in Oxycontin which is a multi-billion $$ drug). The first Phase III trial looked good, but was a little inconclusive, and the stock that was hovering in the 5-6 range didn’t move much. Still given the company’s market cap is only in the low hundred millions and any one of these drugs alone if successful is worth several billions, it’s always looked a good bet to me.
Then last week Pain Therapeutics cut a great deal in which it essentially passed off a share of the profits and all of the costs for its third line drug Remoxy (yes the CEO’s name is "Remi"–no ego huh!), which is a non-alterable version of Oxycontin (and therefore can’t be abused as Oxycontin or "Hillbilly Heroin" is frequently), to King Pharma for up to $400m, including $150m in cash. The stock went up about $2.50 and I was looking forward to a conclusive phase III for Oxytrex leading to an FDA approval.
So today the Phase III results are out and they are maddening. The drug appears to work, but too many people dropped out of the trial, and so the results are not statistically significant. My guess is that the FDA will make them go around again. The stock is now back down to more or less where it was before the King deal (so I suppose it could have been a good deal worse). But still no clear end in sight.
I’ve been hanging on for about 3 years. And of course in the meantime I didn’t buy any Google stock because it didn’t have much upside….
Any suggestions from my readers as to what I should do now?
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Tom. Thanks I was expecting “sell” or “buy more” but I take your points. I am a former futures trader in a previous life and I regard mutual funds as basically organized theft, and I suspect that I can do as well as them in sectors and stocks I follow. I follow about 20-30 but tend to dip in and out.
The advantage of buying an individual stock (especially one that you think has been unneccessarily crucified) you can limit your downside loss but have a huge upside. I’m not what I’d call rich, so returning the S&P every year (or even doubling it) isn’t that attractive on the money I put into stocks. I do balance my portfolio enough for my preferences with cash/S&P index trackers/housing, etc, but I tend to like the idea of getting a big score (2-10x) with some of the stocks I buy. PTIE clearly had that potential (and I’m already well up on it overall) because if it goes to 20 or 30 (which it will if it has a successful drug) the upside is much greater than the downside even if it goes bust.
The key question is whether I continue to trust a management team that appears to have botched a trial design…
BTW the only major stock loss I have ever had came from going on the word of an analyst I saw at a conference…never doing that again. I like your idea of doing your own research. On the other hand, that means I do miss out on some apparently obvious ones (GOOG being a great example!)
You don’t say how much of your wealth you have tied up in this company.
If it is in the 5% range and you still basically trust the company’s (egotistical) managers to make the best possible decisions for you GOING FORWARD, go ahead and ride it out. The proper question to ask before any decision to sell is “what has changed?”. If you no longer trust management, or you look at the details of the trial and decide that the market has estimated the company’s value wrongly, then you will take action. Maybe you will buy more of the stock. Maybe you will dump all of it, or only half of it. If nothing has changed, then don’t do anything.
If you have a significant fraction (and you should define “significant” for yourself) of your wealth in this single stock, I’d advise you to (re)balance your portfolio right away unless you are confident you have market-beating information. And you probably don’t.
In general, I’ll advise you not to buy individual stocks unless you are in a position to do all the work a good analyst at a brokerage or mutual fund should do. If you are, then you should build yourself a portfolio of 30 – 50 stocks and monitor it quite carefully. There are books on portfolio design that can help you build one to your liking.
If you are not in a position to do all the work a good analyst at a brokerage or mutual fund should do, and you like pharma (or the medical sector generally), then find yourself a good pharma or medical sector mutual fund and pay the fund manager to do the legwork. With your background in the industry, you might be able to develop a relationship with the fund manager and help your own cause a bit.
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