December 30, 2010 - 6:12pm EST by
2010 2011
Price: 6.10 EPS $0.47 $0.79
Shares Out. (in M): 23 P/E 8.0x 4.8x
Market Cap (in $M): 138 P/FCF 8.0x 4.8x
Net Debt (in $M): 0 EBIT 34 63
TEV ($): 130 TEV/EBIT 3.7x 5.0x

Sign up for free guest access to view investment idea with a 45 days delay.



Pernix Therapeutics is a growth stock trading at a value price with substantial optionality. The company has strong current cash flow, a solid balance sheet, no debt, huge insider ownership and operational leverage in the business model.
Although the stock price has started to appreciate very recently the story is largely unknown with only Zachs have coverage of the stock.
The company reported a strong quarter most recently, during their seasonally slow time, earning .10 and .06 on a operational basis.  The strong quarter was probably an impetus for the near near term share appreciation, along with anticipated developments in their cough suppressant.
PTX is the result of a reverse merger last Spring in which Golf Trust of America (traded as GTA) absorbed Pernix which is a private company at the time, issued shares to the private owners of the company and contributed their publicly traded shell and cash.  The cash was a result of the divesting of the golf courses which they had operated over the past several years.  Pernix owners agreed to lock up their shares for a total of three years, so they are committed to the long term success of the company and there is no risk of them dumping their shares for the liquidity of being publically traded.
As a bonus, the float of the company is very small with insider that are locked up owning about 90% of the stock.  Continued positive developments could create a meaningful supply/demand inbalance.
PTX is a simple story, they are primarily a marketing company that owns and markets cough and cold medicine for children.  They do not manufacture the drugs themselves and have developed and acquired their products.  The company pays their sales people low salaries and high commissions and yield per sales rep is much higher than the industry average.  Importantly in the last half of 2010 they doubled their sales force from approximately 25 sales reps to 58 sales reps.  Their new sales reps have been though their training and are ready to hit the ground running in time for cough and cold season.
The company owns 14 branded cough and flu products along 6 product lines.  Their recent acqusition of Cedax should give them a strong boost into the antibiotic line and sells authoized generics of branded producs through Macoven pharmaceuticals. 
While the stock is very cheap on just its current operations and anticipated sales accleration from Cedax and the doubling of their sale force the big optionality comes from some potential future deals.  In q1 the company said they are in late stages of discussions with a privately held pharmaceutical company for a potential co-promotion deal with brings on a "best in class" pediatrics product.   The company has said it could have a very large impact on sales and net income.   The product is supposed to launch in q1 of 2011.
Even more exciting is the company has the U.S. right to an organic cough suppressant which they are in the process of developing a partnership.  While details are unknown at this time the market for an organic cough suppressant is very large (current cough suppressants have high sugar content so not very attractive for children) a successful product could dwarf all of the current products of the company.
The risks of the story at this price seem minimal.  The company is already generating strong cash flow, has no debt and has a simple product.  Unfortunately, children are always going to be sick and parents will always get them the medines they need.  The products are already successful and the company could trade at twice the current price with no expansion of earnings or multiples, plus the big pop they could get with their new best in class pediatric product or the development of the organic cough suppressant.  The stock should trade into the double digits in 2011 and in the next 1-2 years over $20.


1) Continued public market awareness.
2) Entering cold and flu season which is their seasonally strongest.
3) Potential partnership of cough suppressant.
4) Potential best of class product to be introduced in q1.
4) Acceleration of Cedax product.
5) Operational leverage of doubling of sales force.
    show   sort by    
      Back to top