When drug companies attempt to bring new drugs that are outside of their core competencies to market, investors always need to be wary. So when development-stage pharmaceutical company Pain Therapeutics (Nasdaq: PTIE) announced in November that it had purchased the rights to develop a preclinical-stage cancer compound, I was skeptical.
When drug companies try to develop new compounds outside their past development activities, they increase the risk that something could go wrong in clinical trials. On an unrelated conference call the other day, one analyst stated that "sometimes a drug fails in clinical study, and other times, the clinical study fails the drug." The less experience a company has with a type of therapy, the greater the likelihood that a clinical trial will get set up incorrectly, or that other setbacks could occur. With Pain's main focus on treating pain-related indications, not cancer, this new compound is a bit outside the company's past endeavors (although some of its management team does have some experience in this area).
Pain Therapeutics' new unnamed cancer compound will begin phase 1 clinical testing in the coming quarter as a treatment for metastatic melanoma. It is a radiolabeled monoclonal antibody, combining a cancer-targeting monoclonal antibody with radiation therapy. Basically, the monoclonal antibody will target mostly cancer cells, delivering the increased cell-destroying payload of a radiation therapy. It's a more focused approach than radiation treatments, which target more healthy cells.
Whether the new in-licensed cancer compound is a sop to Pain's old partners at the Albert Einstein College of Medicine or a valid new drug candidate, investors won't know until the drug starts producing efficacy data in phase 2 trials. Fortunately, this new drug candidate won't require much of Pain's $200 million cash stockpile, with expected R&D expenditures of only $10 million this year.
If the compound gets into later stages, though, it may be sucking up more cash than its prospects seem to warrant. Consider that other radiolabeled monoclonal antibodies that have made it to market, like GlaxoSmithKline's (NYSE: GSK) Bexxar or Biogen Idec's (Nasdaq: BIIB) Zevalin, have been commercial flops.
Regardless of how this cancer compound performs in the clinic, Pain Therapeutics' future prospects are almost wholly tied to the outcome of its phase 3 study of abuse-resistant pain drug Remoxy. Results from the Remoxy study will be out later this year. If these results are negative, no cancer compound -- especially one years away from possible marketing approval -- will be able to compensate for the fall in Pain's share price.
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Fool contributor Brian Lawler owns shares of Pain Therapeutics but no other company mentioned in this article. The Fool has a disclosure policy.
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