It's very unusual for a productless, development-stage drugmaker to buy back its own shares. By their very nature, these companies burn through cash as they try to bring their drug candidates to the market. Last week, Pain Therapeutics
Ever since its deal with King Pharmaceuticals
Buying back shares of its stock should prove a very good use of investor cash for Pain, if the results from its nearly complete Remoxy phase 3 study are positive. If successful, this study will validate the whole abuse-deterrent technology platform that Pain uses for Remoxy. This means that the same technology might successfully be applied to other addictive drugs as well.
As a comparator, though, New River Pharmaceuticals developed an abuse-resistant ADHD drug, Vyvanse, which just launched in the same market as Shire's
The situations are a little different -- New River was partnered with Shire for its abuse-resistant drug, while Pain Therapeutics will be competing with privately held Purdue and others for the $5 billion-$10 billion annual opioid pain-drug market. It probably won't make sense for King to simply stay on as partners with Pain, should Remoxy gain regulatory approval, since there are many more addictive drugs to which Pain's technology can be applied.
Results from the Remoxy trial will be out later this year, with a planned New Drug Application around the first quarter of 2008. Buying back shares now makes more sense than waiting until after the trial results are announced.
It's worth mentioning that investing in drug stocks on the vague possibility of a future buyout is never a good idea. If a buyout awaits Pain, though, it doesn't make sense for it to use cash and other company resources on preclinical-stage cancer and other compounds. For this reason, and given the high probability of Remoxy's success in clinical testing, a stock buyback could be a smart allocation of capital, even for a development-stage drugmaker.
Fool contributor Brian Lawler skinned his knee playing fussball and owns shares in Pain Therapeutics, but he holds no financial position in any other company mentioned in this article. The Fool has a disclosure policy.