Pernix Therapeutics Holdings Inc (NASDAQ:PTX) has been on our watch list for quite some time now. We first highlighted the company a couple of months back, when we suggested that it was in line for a buyout. These suggestions amplified when new CEO John Sedor took the helm, and we reiterated our belief that Pernix was dressing itself up for acquisition, and that given the recent spate of big-name premiums paid in the space, such an acquisition might be rewarding for shareholders with an exposure ahead of any announcement. Well, the company has just put out word that it has started to distribute a couple of lead products, and again, this points towards our initial bias.
Here is why.
First, and by way of a brief introduction, let’s have a quick look at Pernix.
The company is a young biotech operation with a pain management focus, and a pretty robust pipeline of development phase assets in areas such as sleep management, depression, and other neurological disorders.
At last count, the company generated the little over $36.7 million in revenues (second quarter, 2016) and recorded a net loss of $31.1 million. Cash on hand came in at just shy of $30 million, which put Pernix in something of a precarious position.
All this was secondary, however, to our expectations of a buyout. As we mentioned previously, the CEO is notorious for taking on languishing biotech companies, restructuring them (basically, cutting staff, selling off non-core assets etc.) and then selling them at a premium to the open market rate to a bigger name in the space. Now, it looks as though Sedor is attempting to squeeze out the maximum possible revenues from the company’s core offerings, as per the latest announcement.
So what does it say, and what does it mean for Pernix?
At the end of 2014, the company acquired the rights to a migraine drug called Treximet from big Pharma incumbent, GlaxoSmithKline plc (ADR) (NYSE:GSK). At the time, the latter was undergoing its restructuring, as part of which it sold off and traded many of its assets with Novartis AG (ADR) (NYSE:NVS).
Pernix picked up Treximet for $250 million ($220 million of which derived from convertible note issue) and agreed to pay an extra $17 million associated with a pediatric indication – the indication for which the company just started distribution. This distribution is what the latest announcement covers.
Trexmet accounts for a majority Pernix’s revenues, but it has fallen well short of the company’s initial expectations of the asset’s position. This has been something of a sore point between management and shareholders over the last 12 months or so, and it looks as though Sedor is attempting to sweeten things a little by bringing the pediatric indication into the fold.
And we think it’s an excellent strategy.
There is currently very little available right now in pediatric migraine, and this combination treatment (it’s a combo of two different, but established MOAs) has proven superiority over placebo on numerous occasions. It’s essentially filling out an unmet need, and should serve to top up the lackluster (we’re being a little harsh with lackluster, but the company paid a quarter of a billion dollars for an asset on which it is yet to generate any substantial net income) adult derived sales.
The market is age restrictive – migraine sufferers in the US between the ages of 12 and 17 – but here’s the thing: it is almost certainly big enough to provide a nice sales boost, and this is going to make the company attractive near term to a buyer.
Here’s a few numbers on pediatric migraines:
(migraines occur) in up to 10.6% of children between the ages of 5 and 15 years, and 28% in children aged between 15 and 19 years.
The usual age of onset is 12 to 17 years of age for females and 5 to 11 years for males with incidence of migraine with aura cresting earlier in this range for both.
Pernix’s latest distribution is for children ages 12-17. That means the company is looking at targeting somewhere between 12 to 20% of the latter mentioned age range in the US with its product.
There are around 25 million children in this age range in the US right now. At around $600 for 9 pills (which will generally last between 3 months and 6 months) there’s a potential low end in the hundreds of millions.
Pernix doesn’t have the sales force or the cash on hand capitalize fully on this, but that’s not the point. Another company does, and with this potential now a distributed reality, it’s another undervalued asset looking to be vacuumed up by big pharma.
We’re going to keep our ears to the ground for any buyout rumors on this one. Subscribe below and we will keep you updated!
Disclosure: We have no position in PTX and have not been compensated for this article.