This Approval Sends Pernix Therapeutics Holdings Inc. Shares Soaring

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares in Pernix Therapeutics Holdings jumped by 10% earlier today after the FDA cleared its migraine drug Treximet for use in pediatric patients.

So What: Pernix Therapeutics Holdings specializes at breathing new life into previously-approved drugs, such as Treximet.

Treximet was approved as a treatment for migraine in adult patients in 2008, and Pernix acquired the rights to it from GlaxoSmithKline a year ago. Under the terms of that acquisition, Pernix paid GlaxoSmithKline $250 million upfront and agreed to pay royalties to the tune of 18% on future sales.

With this new approval, Treximet can now be prescribed to treat migraines in patients who are age 12 to 17 years old.

Now What: When Pernix acquired Treximet it issued guidance for company-wide sales of $230 million in 2015; however, in April the company revised its forecast to between $220 to $250 million, partially in response to uncertainty tied to lower Treximet script volume and pricing.

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Now that the company has secured the FDA green light for use in children, it stands a better chance of delivering on that forecast.

According to Pernix, migraine affects as many as one in five children age 12 to 17, and due to a lack of suitable treatment options for this age group, that may mean that demand for Treximet could be strong.

Pernix investors hope that will prove to be the case given that the company's strategy of acquiring and rejuvenating previously launched drugs has saddled it with a lot of debt. Exiting March, Pernix had $18.9 million in cash and $295.7 million in debt.

Although that debt creates a drag on profitability, I think this company has the potential to leverage Treximet and its more recently-acquired Zohydro for sales and margin growth, and if so, then this company's profit picture should brighten. For that reason, this stock is one to watch.

The article This Approval Sends Pernix Therapeutics Holdings Inc. Shares Soaring originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.