Portfolio Pain Relief

Are you looking for a small drug development company with three drugs in phase 3 trials? If so, take a look at Pain Therapeutics (Nasdaq: PTIE  ) .

The company's stock is the largest percentage gainer on the Nasdaq -- up an astounding 48.9% at Thursday's high. The reason: Pain Therapeutics is forming a strategic alliance with King Pharmaceuticals (NYSE: KG  ) to develop and commercialize Remoxy (long-acting oral oxycodone) and other abuse-resistant opioid painkillers. Positive phase 3 test results were announced for Remoxy in September.

Painkiller oxycodone has come under attack because drug abusers can grind the pills or dissolve them in high-proof alcohol to get a quick, powerful high. Remoxy and its "sticky, high viscosity" make the capsule formulation nearly impossible to abuse. Even so, the drug's target market is a $1.9 billion-a-year opportunity in the U.S. alone.

King obviously likes that potential. It's making an up-front payment of $150 million in cash. That's a wad of greenbacks for a company that, at Wednesday's close, had an enterprise value (market capitalization minus cash) of $207 million.

Based on milestone payments, Pain Therapeutics can earn another $150 million for Remoxy and other abuse-resistant opioid drugs. Better yet, King is responsible for all R&D expenses related to the alliance, which could total $100 million. Remoxy enters phase 3 trials in January 2006.

Another drug in the pipeline is Oxytrex. Fellow Fool contributor David Nierengarten covered its phase 3 trial results earlier this year. This product is targeted as a substitute for oxycodone, with fewer side effects. If approved, it will clearly offer a viable alternative to today's generic oxycodone medication.

Pain Therapeutics' third drug undergoing phase 3 trials targets irritable bowel syndrome, a $1 billion market in the U.S. alone. Results from the first U.S. test are expected by the end of 2005.

King has locked up a key drug technology. And Pain Therapeutics has research funding at shares that go for $3.42 today. If these drugs are approved by the FDA, King will share in the accomplishment as a partner.

Pain Therapeutics' expense burden is vastly lightened because of the new partnership with King, but uncertainty remains as to the company's prospects moving forward. For that matter, upside is also limited by the agreement. But, hey, it beats issuing more shares to cover costs, or taking out more debt it may not be able to repay.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.