Pernix Therapeutics Holdings Inc (NASDAQ:PTX) ran from $4 to $5 at the end of last week on nothing more than a spike in volume. The company consolidated post-run and currently trades for $4.82. This is one that we have looked at on a number of occasions over the past twelve months and one that – against a backdrop of largely negative sentiment – has performed in line with our medium term bull thesis.
Year to date, Pernix is up 120%. The company is down from highs in and around $7 recorded back in May, sure, and it may be a while before we see that number again. With that said, however, very near term, we think there’s the potential for a breakout and a closing of the gap between current pricing and just-mentioned highs.
For those new to this one, Pernix makes for a pretty two-sided exposure. The company has a solid portfolio of commercial assets (the three primaries of which are Silenor, Zohydro ER and Treximet) and is growing top line steadily through this portfolio. It’s also well positioned in its market, with the company’s primary proprietary technology, what’s called BeadTek, serving to offer physicians an abuse deterrent type opioid as an alternative prescription asset for pain management patients. With opioid abuse at epidemic levels in the US right now, there’s considerable room for growth with an asset portfolio, and a technology, like Pernix’s.
That’s the good news.
The bad news is that the company has more than $300 million in debt, ten times its cash balance, and the servicing of this debt is severely limiting Pernix’s potential to push for growth in the above-noted market. Total principal amount of debt outstanding at March 31, 2017, was approximately $321 million. This consists of around $177 million of 12% senior secured notes, $130 million of 4.25% convertible notes and $14 million under a revolving credit facility.
We have suggested in the past that Pernix’s technology platform makes it a prime candidate for a buyout. With this sort of debt shadow hanging over the balance sheet, however, it’s going to be tough to find a buyer that will entertain favorable terms.
So why do we think the company could breakout near term?
Well, by the end of this month, management is going to report on its efforts to transition to another financing source, outside of the current agreement with Wells Fargo. If the transition is favorable in that it helps to alleviate some of the debt-service pressure or removes any potential for near term dilution (something that’s weighing very heavily on the company right now) then we think markets will breath a long time coming sigh of relief and sentiment will shift to the positive side of the spectrum.
It’s not going to take off – don’t get us wrong. The real run will come if and when we see any development as relates to a buyout or an asset sale (there’s a good chance that the company might look to offload the BeadTek technology and use the cash raised from that sale to pay off some of its debt).
Between now and then, however, small changes could translate into a fair amount of upside revaluation. A refinancing (if that’s what happens) is one such small change; one with pretty extensive implications for the company as 2017 matures.
Bottom line: we’re on the lookout for any sign that Pernix is headed in the right direction – one that helps it alleviate some of its debt concerns – as a potential breakout catalyst, with the end of July announcement being a key example of one of such sign as and when it hits press.
Don’t act without getting the whole story: check out our previous coverage of this stock here.
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Disclosure: We have no position in PTX and have not been compensated for this article.