Back on August 3, we made a bold suggestion. In this article, we suggested that Pernix Therapeutics Holdings Inc (NASDAQ:PTX) was in the early stages of dressing itself up for a buyout. Our thesis was simple: the appointment of a new CEO, shortly before our publication. Not the appointment itself, but who was appointed.
Now CEO John Sedor has a rich history of taking the helm at embattled biotechnology companies, dressing them up, and selling them for a strong premium on their then current PPS. For us, it was a no brainer. The company had struggled year to date, and despite one of the strongest institutional bases we’ve seen in the microcap space, retail investors just didn’t seem to be interested.
Since then, the company has undergone a thorough restructuring, and a reverse split – both of which soured investor sentiment a little, but both of which we slated at the time as reinforcing our thesis.
At the close of last year, Pernix went for $1.94 a share. Post split, the company went for $4.29. That’s a 54% discount. Since year open, Pernix has gained more than 50%. Why? Well, because it’s now looking increasingly like our buyout thesis is valid, and we’ve actually got some degree of confirmation from management that that is the endgame exit.
First, for those not yet familiar with the company, it’s a biotechnology company based out of New Jersey, and it 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 which 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).
It’s also got a suite of generic drugs on the market, and generates decent sales on both platforms. During the third quarter of 2016, the company brought in just short of $41.5 million revenues and grossed $30.6 million profit. This is up from $36 million a quarter earlier, and $32 million during the first quarter of 2016. Revenues, in other words, are moving in the right direction. For the full year 2015, revenues came in at $175 million.
Cash on hand at last count (September 30) was $28.5 million.
Keep in mind, here, that Pernix currently trades for a less than $30 million market cap.
So what’s happened recently that hints at a buyout? On January 6, 2017, Pernix announced the appointment of Ken Piña as Senior Vice President, General Counsel and Chief Compliance Officer. If there was an appointment, other than a CEO that has a history of joining then overseeing the sale of biotechs, that points to a pending sale of Pernix, it’s this one. Why? Because a compliance officer and full time general counsel representation is key to managing offers, and overseeing the acquisition process. In other words, Pernix started by bringing in Sedor to get Pernix’s cards in order, and has now brought in Piña to make sure that when the offers start to come in, they are tendered correctly and compliantly.
Then there’s this, taken from an 8K dated December 22:
“The Company shall commence a marketing and sale process no later than January 9, 2017 to explore a sale of the Company or any or all of the Company’s assets (the “Sale Process”). The Sale Process will give potential buyers the choice of bidding on the Company or any or all of its assets, and the Company shall use its reasonable best efforts to market the Company and any or all of its assets to as broad a group of buyers as is reasonable.”
As we’ve said in the past, this is all pretty speculative, and there’s no guarantee that the company is going to sell itself, or even intends to. With that said, if we were to list the flags (and we have been doing, across the last six months and more) that point to a potential buyout, it’s difficult to ignore those that Pernix is flying.
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Disclosure: We have no position in PTX and have not been compensated for this article.