What The Latest Ruling Means For Pernix Therapeutics Holdings Inc (NASDAQ:PTX)

Back at the beginning of February, we took a look at Pernix Therapeutics Holdings Inc (NASDAQ:PTX) as part of this piece. The driver behind our turning our attention to Pernix was a then just-reported litigation outcome, detailing the conclusion of a long standing dispute between Pernix and big pharma incumbent, GlaxoSmithKline plc (ADR) (NYSE:GSK) over a drug called Treximet, which is Pernix's primary revenue driver.The dispute was rooted in Glaxo claiming it was owed some cash based on the initial purchase agreement through which Pernix picked up the rights to Treximet from GSK. The outcome wasn’t great for Pernix. Basically, the court ruled that the company needs to pay GSK $35 million in restitution to settle the claims, plus a couple more million in interest.The net outcome for Pernix, after paying out what it owes, will be a cash balance of around $2 million, down on a pre-payout balance of $26 million (the company had already put $16.5 million in escrow in anticipation of a payout ruling).Anyway, as we noted last time, this is all by the by.First, we expected the outcome (as did Pernix, as illustrated by the company escrowing some cash in advance of the ruling). Second, it's not about the payout. It would be if the payout was going to bankrupt Pernix, but it's not going to, so it becomes about what's next. And this "what's next" has been made far more attractive by the concluding of the litigation than it has been made less attractive by the specifics of the conclusion.We have longhighlightedPernix as a buyout candidate. The company has an attractive asset portfolio and currently generates revenues of around $150 million annually. It's valued at just $30 million at current market cap. The appointment of the current CEO, we surmised last year, was done to facilitate the buyout – he has a reputation for taking over small biotechs and dressing them up for buyout. The reverse split, while not great for shareholders, we also argued was a necessary evil for a buyout to become attractive to any potential suitors.The reason we think that no one has come in with an offer, however, is uncertainty. And specifically, we think this uncertainty was rooted in two outstanding legal situations. The first was the GSK claim. That's now resolved. The second relates to some litigation surrounding claims against the validity (more specifically, the enforceability) of Pernix's patent claims over an asset called Zohydro. A company called Actavis has developed a generic formulation of Zohydro, and was attempting to get the FDA to approve an ANDA, which would allow it to commercialize the generic formulation. Of course, this approval would dramatically impact Pernix's ability to generate revenues from the original asset, as in all likelihood, the generic would be far cheaper.This week, Pernix has announced that Judge Gregory M. Sleet of the United States District Court for the District of Delaware concluded that Actavis’ proposed generic versions of Zohydro infringe on two of Pernix's patents for the drug. In turn, Sleet entered an order enjoining Actavis from engaging in the manufacture or sale of the generic product prior to expiration of the two patents. The patents in question expire in 2019 and 2034.So, what does this mean for the company?Well, aside form the obvious, it plays directly into the conclusion we drew on the back of the GSK litigation playing out – namely, that the closing of these legal issues make the company a more attractive buyout candidate, and should entice suitors into making an offer.In the interest of balance, we'll also make the same argument – it's not the outcome of the ruling that is important, but that the ruling is made, and in turn, the uncertainty lifted.Sure, a 20% run on the news is nice, but there's more than that available if the offers come in.We will be updating our subscribers as soon as we know more. For the latest updates on PTX, sign up below!Disclosure: We have no position in PTX and have not been compensated for this article.