Pernix soars on absolutely no news; naturally, rumors of a takeout flourish

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The News:

Pernix Therapeutics Holdings Inc. (Nasdaq:PTX) was one of the week’s top gainers, rocketing $2.02, or 50%, to $6.33 Monday (May 8, 2017)–without a press release being issued, or other important news breaking via a different medium. Some analysts said investors are simply motivated by comments on Twitter, StockTwits, and other social networks, saying that this is a sign of an acquisition to come.

@PernixTX gains 50% on #acquisition speculation on social media Click To Tweet

Steve’s Take:

Here’s another head scratcher where a couple of news organizations are pitching Pernix as a potential acquisition target for somebody much bigger, with shareholders coming out with eye-popping returns. Only problem is a distinct lack of actual news suggesting something’s afoot.

Just what do we know?

When the current CEO of Pernix, John Sedor, took over last year, Insider Financial (IF) suggested the company was slated for acquisition based on Sedor’s track record in that arena.

The takeout analysis is based on the following:

The New Jersey biotech focuses on the development and commercialization of drugs that treat disorders of the central nervous system (CNS). Its two leading offerings are Treximet, which is designed to treat migraines, and Zohydro ER, which is an extended-release opioid targeting pain management. Pernix also has a decent portfolio of profitable generics.

Recently, the company concluded some pending litigation with pharma giant GlaxoSmithKline PLC that to some smacked of tying up of a loose end that might have hindered any potential acquisition and strengthened Pernix’s theoretical bargaining position with a potential suitor.

More recently, pure price action with Pernix’s shares could signal what Sedor’s planning. By April 28, shares closed at $4.21. At the close on Monday, May 8, 2017, they had risen to $6.33. That’s more than a 50% appreciation across a week’s worth of trading without any obvious vehicles driving the share movement. IF believes the majority of this action comes from institutional and retail operators locking in positions ahead of a buyout announcement.

So what might any such announcement involve?

Shareholders likely would view anything above $30 a share as a fantastic return. However, a buyout 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.

Given a buyout scenario and Pernix’s debt and asset position, IF says Pernix is at least $500 million worth of a company to be had. At such a price, that’s about a $17-per-share acquisition price target.

The second firm weighing in on Pernix is CNA Finance, which began its takeout theory back on May 1st, when a press release came out with what could be seen as bad news. Pernix announced it had run into a manufacturing issue with regard to its Zohydro ER pain-management pills.

At the end of the day, Zohydro ER 20mg being off of the shelves wasn’t a big deal. Any physician with a patient that has a need for Zohydro ER 20mg would simply prescribe 2 Zohydro ER 10mg tablets. As a result, Pernix wouldn’t lose significant sales volume.

Ultimately, investors forgot about the Zohydro nonevent and began taking a more considered view of the situation.

What do the analysts think?

As of May 05, 2017, the consensus forecast among 3 polled investment analysts covering Pernix Therapeutics advises that the company will Outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Oct 29, 2016. The previous consensus forecast advised investors to Hold their position.

Recommendations 1yr ago Latest
Buy 2 1
Outperform 2 2
Hold 2 0
Underperform 0 0
Sell 0 0

1-YEAR PRICE CHANGE +7.75%

Pernix Therapeutics has been given an average price target of $30 from analysts, according to data collected by Finviz. Shares closed Monday, May 8, 2017, at $6.33, suggesting a potential upside of 474%.

Bottom Line:

Pernix has a lot going for it. In examining CEO Sedor’s track record, he does display a mastery of building biotech companies to the point of acquisition, such as Cangene Corp., which was acquired by Emergent BioSolutions, and Bentley Pharmaceuticals, which was acquired by Teva.

Another positive factor in the eyes of the potential suitor is that demand for Zohydro 20mg pills is taking off, with an 11% year-over-year sales increase. Through restructuring, Sedor has streamlined the company’s entire sales process and that’s beginning to pay off handsomely.

Due to hard work before he came along, leading to strong products like Zohydro and Treximet, Sedor has the means to push this company onward and upward. He has a history of making the right moves at the right times, yielding excellent value for investors in the company he controls. Pernix could be another John Sedor success story.

Steve's Take: @PernixTX could be another John Sedor success story Click To Tweet

It’s still a risky name to be sure, but keep it on your watch list for more signs of a Sedor-inspired takeout.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.