Continual Evolution

Trade: Buy PTIE; Sell IBN

Rating: 2.50 not yet rated(4 votes)    Vote:

You are logged in as | Logout

Pain Therapeutics is a biotech company developing drugs for use in pain management, primarily in the area of opioid painkillers that are less prone to abuse. As every physician knows (I'm married to one), opioid painkillers are a necessary evil in many conditions since while they are effective at controlling severe pain, they are highly addictive and hence prone to abuse. PTIE is currently in Phase III clinical trial products include Remoxy, which is an anti-abuse version of long-acting oxycodone; and Oxytrex, which is an opioid painkiller for the treatment of chronic pain.

The problem with getting thru FDA approval for such pain killers is that patients on the placebo arm of the trial often drop out (since they don't get relief) and hence its difficult to get meaningful statistics. This problem has plagued PTIE in the past. The last quarter's earnings release, however, seems to suggest that they are close to the finish line. Remi Barbier, Pain Therapeutics' president and chief executive officer: ``In Q4 2007, we plan to release top-line results of our Phase III pivotal study for Remoxy, our abuse-deterrent opioid painkiller. For now, the Remoxy study remains blinded while the last patients' data are being gathered.''

Subtracting out $206M of cash, today's enterprise value of PTIE is $282M which seems cheap given the potential for a widely used pain killer; if the anti-abuse feature works, it may well induce doctors to switch their standard of practice for prescribing opioids fairly quickly. In order to fund their R&D, PTIE has made a distribution deal with King Pharma which provided them milestone based cash, as well as a 20% royalty on future net sales of drugs, (15% for the first $1.0 billion of net sales).

I think the chances are good that the next few months will see a string of positive news and hence established a new position in PTIE.

I closed out my position in IBN (with a nice gain) as well as took some profits in FMCN in order to raise the cash for the PTIE purchase.

Comments: 0

Musing about real estate

Rating: 2.33 not yet rated(6 votes)    Vote:

You are logged in as | Logout

The real estate slowdown has primarily hit residential housing starts so far and hence affected the home builders more than any other group. In fact the home owners seem to be in denial and hence the actual house prices have not yet come down - people seem to be sitting tight, hoping for a turnaround. As a result the inventory of unsold houses keeps growing. I think the actual markdown of residential real estate prices still has to happen in the months ahead (disclosure: I own SRS which is effectively a short position on real estate). Thus we are very far from any kind of bottom on house prices as opposed to housing starts.

In the meanwhile WSJ is now reporting the first signs of weakness in commercial real estate, suggesting that the weakness is spreading:

The report is an early sign that the commercial-property sector is being dragged down by the growing reluctance of lenders to extend credit for anything related to real estate, which in turn could create a new drag on the economy and additional problems for investors. Declining commercial-property values could lead to an increase in default rates on commercial real-estate loans and on commercial mortgage-backed securities.

I own Loopnet (LOOP), which is the leading online "MNLS" type listing service targeting brokers of commercial real estate. They make money on subscriptions and hence are indirectly driven by real estate transactions rather than on prices. I think LOOP will benefit from any change in conditions which causes more transactions; hence I think it is a buying opportunity on any further weakness.

Thus I think for now I well stick with both SRS and LOOP even though at first glance they seem to be bets in the opposite directions. SRS should directly benefit from the forthcoming markdown of prices and LOOP from the resulting froth.

Comments: 1