buyout

We’ve been covering Pernix Therapeutics Holdings Inc (NASDAQ:PTX) since May for our readers and subscribers. We said that it was time to start betting on a turnaround after Doug Drysdale was kicked out of the CEO’s chair and board member John Sedor stepped in as interim CEO.

Then in June, we highlighted the large institutional ownership in PTX. We said that it was rare to to find a penny stock trading under $1 that had a large institutional shareholder base. It’s even rarer when you have a billionaire like Steve Cohen adding to his position. In a 13G filed on April 29, 2016, Steve Cohen’s family office (Point72 Asset Management LP) had increased their position in Pernix Therapeutics from 2.5 million shares at the end of the first quarter, to 3.77 million shares on April 28, 2016.

According to Yahoo! Finance, 59% of PTX shares are held by 124 institutions. This is a strong institutional shareholder base for such a tiny company. PTX’s major shareholders include Broadfin Capital, Morgan Stanley, venBio Select Advisor, Stonepine Capital Management, Elk Creek Partners, Aisling Capital, Vanguard, and BlackRock.

Over the last month, a lot has been happening with Pernix. John Sedor assumed the role of Chief Executive Officer on a permanent basis and pharmaceutical industry veteran, Dr. Graham Miao, who had served as a senior advisor to Pernix’s Board of Directors since May, was appointed as President and Chief Financial Officer. In addition, Sanjay Patel, Chief Financial Officer, Terence Novak, Chief Operating Officer, and Barry Siegel, Senior Vice President and General Counsel left the company. Sedor cleaned house and we said that this should of happened a long time ago. Doug Drysdale remained CEO for far too long. Those that were left were part of the past and Sedor is looking to the future.

This followed the sweeping changes that took place in the beginning of July. The reorganization plan included: (1) a reduction of 54 sales positions, primarily from Pernix’s Neurology sales team; (2) prioritization and reorganization of sales territories to reduce the inefficient time that sales representatives spent driving long distances between customers; (3) improvement of the company’s compensation plan to incentivize the field sales staff to increase the frequency of calls on the focused targets; and (4) consolidation of the Neurology and Pain sales forces under one sales management structure to eliminate redundancies. In addition, as part of this initiative, Pernix reduced its administrative staff by 6 employees.

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As part of this restructuring, Pernix said that it will result in an estimated annualized cost savings of approximately $10 million, beginning in the third quarter 2016. The company expects to take a one-time charge of approximately $2 million in the third quarter of 2016 in connection with this reorganization. CEO John Sedor said of the changes:

“These changes to our senior management team, which are another step forward following our recently announced restructuring of Pernix’s sales force, flatten our organization, reduce our cost structure and improve our efficiency. We believe this management reorganization optimally positions Pernix for future revenue growth and profitability, and supports our goal of maximizing shareholder value. Based on my thorough review of our organization since joining the Company in May, it has become clear to me that Pernix has significant growth opportunities. The recent strong prescription trends for Zohydro ER, Treximet and Silenor support this belief. Going forward, our focus will be on enhancing revenue growth of the current brands, especially Zohydro ER, which we view as a major value driver for Pernix, as well as pursuing other growth opportunities.”

CEO John Sedor has a history of being with companies just before they’re sold. His last deal was Cangene Corporation, which was acquired by Emergent BioSolutions in February 2014. He knows what a potential acquirer looks for in a company and the latest reorganization points to the fact that Sedor is dressing up Pernix to be acquired. It’s not a question of if, but when in our opinion. As we said in June regarding a sale:

While we’re not sure on a price, we can safely say a sale would be at much much higher prices. With Steven Cohen putting fresh money to work in PTX, it’s better to go with the smart money on PTX and be patient. Good things are bound to happen.

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Disclosure: We have no position in PTX and have not been compensated for this article.