Those that have been with us for a while will know that we have pitched Pernix Therapeutics Holdings Inc (NASDAQ:PTX) as a strong candidate for more than 12 months. When the current CEO John Sedor took over last year, it basically cemented in our minds that the company was pitching for acquisition, with said suggestion based on the latter’s track record in this space. Subsequent to our initial hypothesis, we have seen a large number of indications that a buyout is on the cards, and we now believe that it is literally just around the corner.
Why? Because recent action suggests exactly that.
For those new to this company, it might be worth checking out our previous coverage as a bit of a primer on what it does and how things have developed into where they stand today. As a brief intro, this one’s a New Jersey biotech play that targets the development and commercialization of drugs that treat disorders of the central nervous system (CNS). It’s got a host of branded products. The two leads of these are Treximet, which is designed to treat migraines, and Zohydro ER, which is an extended release opioid targeting pain management (and has some abuse deterrent properties).
The company also has a suite of generics that bring in decent revenues (very decent, for a company of this one’s market cap).
Last month, management filed with the SEC to detail some amendments to a Wells Fargo credit agreement, and contained within the filing rhetoric, we picked out a large number of hints that a buyout was poised to take effect near-term. Shortly before that, the company wrapped up some pending litigation with biopharmaceutical giant GlaxoSmithKline plc (ADR) (NYSE:GSK) that, again, we saw as the tying up of a loose end that might have hindered any potential acquisition, and that strengthened Pernix’s bargaining position when it sits down with any suitor.
So what has happened recently that makes us think a buyout is on the cards near term?
Well, we’ve not really had any operational developments hit press, but sometimes you’ve just got to rely on price action as indicative of what’s going on under the hood. At the end of last week, this company closed out for $4.21 a share. At the close on Thursday this week, this had risen to $5.82 apiece. Pernix will open Friday’s session at $5.88. That is a close to 40% appreciation across a week’s worth of trading without any clear catalysts driving the action. We think the vast majority of this game comes from institutional and retail operators locking in positions ahead of any buyout announcement.
So what might any such announcement involve?
Shareholders are looking for anything above $30 a share as being a nice return. However, we think between $10 and $20 might be more realistic. Based on the likely loading cost of the shares held by the majority of the company’s base right now, anything towards $20 would be a solid premium.
And what is next?
Now it is just a case of waiting and seeing. If the company gives us some degree of an operational update, we will take a close look at it in an attempt to see what it means, and how it weighs up against our buyout thesis. There’s every chance, however, that the next announcement to hit press could be one detailing a premium offered by a big-name, or at least one with deep pockets, in this space.
Given Pernix’s debt and asset position, we think there’s at least $500 million worth of company to be had here. At this price, we’re looking at a circe $17 share acquisition price target. That falls in line with our expectations outlined above.
One to watch.
We will be updating our subscribers as soon as we know more. For the latest updates on PTX, sign up below!
Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.