A Small Pharma Stock With Big Potential

Today in Small Cap Friday I am taking a look at a small biopharma concern that has taken some lumps recently, but whose long-term prospects still look bright. Thanks to the deep decline in the biotech and biopharma sectors, the same could be said about myriad names in the industry right now. The company profiled below is going through a transition year in 2015 as it integrates some significant acquisitions, but looks poised to have a strong year in 2016. I have added some shares to my core holdings recently on the downturn. Pernix Therapeutics Holdings (PTX) has a market capitalization of just under $200 million after its recent selloff. The stock has been cut in half in the recent decline, to just over $3.00 a share. The shares traded north of $12.00 a share earlier this year. Pernix is an expanding pain management play. The company has been growing via acquisition and has spent 2015 integrating some recent purchases. Its business model reminds me of that of Horizon Pharma (HZNP), which I also hold, and has delivered huge shareholder returns over the past three years. Here is the rundown on some of the company's key products: Silenor. The company re-launched this product, which is a non-addictive, non-scheduled sleep aid, in the second quarter of 2014. It has a 2020 patent expiration, and Pernix is currently working to develop a generic version as well; 40 million Americans have some sort of sleep disorder. The market is worth some $15 billion annually, and Silenor has just a tiny slice (0.2%) of market share that should grow over time. Treximet. This is a migraine treatment that Pernix acquired from GlaxoSmithKline (GSK) in the second half of 2014. This is another large market in which Treximet only has 2% share currently. The product is a key component of Pernix's current sales mix. Zohydro: The company made a potentially game-changing purchase in the first quarter of this year, when it bought the Zohydro franchise from Zogenix (ZGNX). This gets Pernix in the lucrative chronic pain space, which is dominated by compounds like hydrocodone. Zohydro ER is an extended-release, tamper-resistant and non-addictive chronic pain reliever, which was approved by the FDA earlier this year. This is a massive market, where even a 1% market share would mean over $400 million in annual sales. As part of the Zohydro purchase, the company picked up 100 sales representatives for this pain franchise. They can now also sell Silenor, as many patients with chronic pain also have sleep disorders. Zohydro ER was recently put on Express Scripts' (ESRX) inclusion list for 2016, which should greatly help it gain momentum. Pernix rolled out its Pharmacy Direct Program this summer for Treximet and Silenor, which should also boost sales for those products. Pernix will deliver approximately 40% year-over-year revenue growth this year, even as it integrates and cross-trains its expanding sales force and product portfolio. This integration has made 2015 a transition year, and Pernix looks like it will post a small loss in fiscal 2015 after being in the black in fiscal 2014. Next year should be the year these purchases pay off in a big way, as the consensus has sales growing approximately 30%, with earnings coming in between $0.45 to $0.65 a share, making PTX very cheap on a forward earnings basis.

A Small Pharma Stock With Big Potential

Pernix looks poised for a strong 2016.

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