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Actionable news in PTX: Pernix Therapeutics Holdings, Inc.,

Can Pernix Turn Things Around?


Pernix is in a very difficult financial situation and will probably not be able to service debt in its current form.

36% dilution in just one quarter for just $12 million shows how serious the situation is.

New management and a sales team restructuring could turn things around.

Contrary to recent rumors, Horizon Pharma and Concordia are not buying Pernix.

A lot has happened to Pernix (NASDAQ:PTX) since my last update. As many of you are aware, I sold my shares at a loss and have since dropped coverage on Pernix. In the meantime, I have received a lot of requests to chime in on the latest developments and have decided to write another article. The situation is not great. The main problem is the high debt burden and the lack of real growth due to pricing pressure and execution failure. The current revenue run rate is not enough to cover operating expenses, let alone service debt. I expected a lot from Zohydro and, eventually, from the company's PPD program, but both have been a disappointment so far (though the PPD program is ramping up). Many readers that contacted me have high hopes for a buyout, but the value a buyer would get is now highly questionable. This article will shed some light on the problems the company has now and the problems that it will have in the future and the possible solutions. I remain on the sidelines with no intention of buying but felt compelled to write this piece due to heavy reader interest.

The problems

The company's financial situation is very difficult:

  • The outstanding debt is $339 million and the net debt is $310 million.
  • The company has to pay almost $30 million in interest every year and half of Treximet net sales (interest + principal) to Treximet note holders.
  • As of Q2 2016, the company's EBITDA was negative $1.4 million. If we include around $9 million in interest payments (notwithstanding the Treximet principal payments two times a year) this translates into a $10 million a quarter cash burn.
  • Pernix had $29 million in cash and equivalents and total liquidity of around $40 million.
  • The company paid $17 million in principal and interest payments to Treximet note holders on August 1.
  • The company diluted the shareholder base by 36% in the second quarter and it raised just $12 million.

I assume the company will generate positive EBITDA in Q3 and Q4, and I estimate the cash burn in 2H 2016 at $20-25 million (including the principal and interest payment to Treximet note holders). Pernix would have been very short on cash if it hadn't raised those $12 million and diluted the shareholder base by a whopping 36% in just one quarter. The company can raise $87 million more through its controlled equity program and at this rate, the share count would rise from 88 million to over 200 million over the next few quarters and it would be just a temporary fix.

The other problem is...