The past two months turned out to be a nightmare for shareholders of Pain Therapeutics (NASDAQ:PTIE). Shares have fallen nearly 81% after the FDA rejected the company’s abuse-deterrent opioid painkiller drug, Remoxy, for the fourth time.
Adding insult to injury, the biotech firm announced this morning that it will be selling at least 8,860,778 million shares at $1.15 apiece, which is well below the $1.96 per share where the stock had been trading yesterday afternoon. In addition to that deep discount, the offering represents over 100% dilution for existing shareholders.
Additionally, the company has also agreed to issue to the investors unregistered warrants to purchase up to 8,860,778 shares of common stock, at a purchase price per warrant of $0.125, for gross proceeds of approximately $1.11 million. The warrants have an exercise price of $1.25 per share of common stock, will be exercisable immediately and will expire two and one-half years from the issuance date.
On the other hand, these new shares won’t just raise the share count but they’ll also raise cash. The company expects the sale of these new shares to help shore up its balance sheet by generating as much as $10.19 million in new capital, excluding the proceeds, if any, from the exercise of the warrants. The company intends to use the net proceeds from this offering for drug development and general corporate purposes and for other working capital and general corporate purposes.
Gabelli analyst Kevin Kedra recently noted, “The FDA’s fourth rejection of Remoxy is the fatal blow after a decade of attempts. Pain Therapeutics appears to have no plans to pursue a fifth NDA filing, and we see no reason for an outside partner to acquire the rights when there are several approved but unmarketed “abuse deterrent” opioids available […] Pain Therapeutics will undergo a strategic reorganization that will pivot the company towards programs to treat Alzheimer’s disease. PTI-125 is a small molecule targeting filamin A that is has completed Phase I studies, and PTI-125DX is a blood test for early detection of Alzheimer’s. Alzheimer’s disease is arguably the biggest riddle facing biopharmaceutical companies, one that has seen billions of dollars spent on failed late-stage studies that call into question the prevailing beta-amyloid hypothesis (targeting filamin A is linked to this underlying hypothesis). After spending the last decade trying and failing to get a reformulated version of a century-old drug approved by the FDA, we consider it highly unlikely that Pain Therapeutics will be the company to solve the Alzheimer’s disease riddle.” (To watch Kedra’s track record, click here)