Pernix Therapeutics Holdings Inc (NASDAQ:PTX) is attracting lot of attention at the moment on the back of its potential buyout. Rumors are spreading that the company is set to report that it is trying to sell itself, or even that it already has, and this is drawing speculative buy volume. If there is credence to the suggestion, there are two questions that need to be answered. The first, who would make for a good potential suitor. The second, how much would they pay for the privilege? Let’s have a go at answering these questions.
For those new to Pernix, the company is New Jersey based biotech with a host of approved and commercially available drugs. These include Treximet, a migraine drug; Zohydro ER, a pain management drug; and Silenor, a sleep management drug. These three drugs account for the vast majority of the company’s revenues, weighted towards Treximet. At last count, second quarter 2016, Treximet accounted for $17.8 million of total net product sales of $36.6 million. Silenor accounted for $4.2 million and Zohydro accounted for $5.9 million. For reference, net loss came in at $31.3 million for the second quarter.
The story here is that Pernix has had a tough time over the last couple of years. Early last year, the company traded for just shy of $12 a share. Over the subsequent twelve months it collapsed to eventually fall below the NASDAQ minimum $1 bid threshold, and now risks delisting if it doesn’t pick up above that level. Things were looking very bad, until John Sedor took over as Chairman and CEO.
Sedor is the guy who took over at Cangene and dressed it up for sale to Emergent Biosolutions Inc (NYSE:EBS) back in 2013. He did the same with Bentley Pharmaceuticals, which sold to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) in 2008. As part of this latter deal, he spun off a company called CPEX Pharmaceuticals from Bentley, and in 2011, sold it to Footstar in a $75 million deal.
There’s a pattern here…
He is a go-to guy for taking control of a biotech, spinning off its non core assets and making it an attractive buyout target. If Pernix was looking to sell itself, this is who the company would bring in to implement the preparatory efforts. By announcing the placing of Sedor as CEO, Pernix got as close as it could to saying it is dressing up for a buyout without actually saying it.
So who would be a good fit for Pernix, and what premium might shareholders expect on the current price?
There’s a lot of debt on the company’s books – circa $300 million at last count – and this would obviously impact whatever price any potential suitor is willing to put forward, but if Sedor can execute on his restructuring (something he has already started doing based on the second quarter operations update) then this impact might not be too large. Using the deals mentioned above as a leading indicator of a premium, Teva paid a 9% premium for Bentley, while Footstar paid an 11% premium for CPEX. Emergent paid a 28% premium for Cangene.
The acquisitions space has been a bit soft as late in biotech, but there have been a few high profile premiums paid. Pfizer Inc. (NYSE:PFE) is just about to pay a 21% premium for Medivation Inc (NASDAQ:MDVN), for example.
As to who would make for a good suitor, we’ve mentioned Teva a couple of times, and we’ll highlight it again. Pernix has a solid generics operation that it runs by way of two wholly owned subsidiaries, and these would fit nicely in to generic giant Teva’s operations. It’s branded drugs would do the same.
We’re watching closely for an upcoming announcement. Subscribe below and we will let you know when we find out anything new!
Disclosure: We have no position in PTX and have not been compensated for this article.