A Case of a Misleading Stock Price
Dear Mr. Berko: I bought 2,000 shares of Pernix Therapeutics Holdings in June for 50 cents a share. I bought the stock because the company makes a drug called Treximet, which I use for my migraine attacks. Seeing as I pay $695 for nine pills, I figured I could make a bundle buying the stock. And I have, because it’s now selling at $4. I’ve made about $7,000 in about six months.
So should I buy more shares? Should I sell all 2,000 shares and take my profit? Should I just sell enough to get my $1,000 investment back and let the rest of it ride? Or should I sell half my position and allow the other 1,000 shares to ride? Your quick response would be appreciated. Please don’t use my real name. I’m a private person. Lots of people here read the column and might know that I’m the writer. — XX, Durham, N.C.
XX: That’s a lot of questions for someone without a name.
Pernix Therapeutics (PTX), trading at $3, is a dinky, ratlike $170 million-revenue pharmaceutical company whose CEO, John Sedor, CFO, Graham Miao, and controller, Mike Golembiewski, may not be giving shareholders a fair shake.
PTX has been making and selling drugs for 20 years and has some decent but pricey stuff on the market. You mentioned Treximet and the fact that each pill you pop costs $77.22. When one of those cyclopean migraines is coming on, lots of people would pay $277 a pop. However, a gross profit of $77.11 — the retail cost of the ingredients is 11 cents — per pill is sordid, scandalous and unconscionable. My son, who is an emergency room doc, told me that Treximet has two active ingredients — naproxen and sumatriptan, both of which are popular generic drugs.
A single Treximet pill contains 500 milligrams of naproxen and 85 milligrams of sumatriptan. PTX even makes a lower-strength Treximet for pediatric patients. How sweet! Naproxen is purchased quite cheaply over the counter at Walgreens or CVS, and sumatriptan is an inexpensive prescription medication, retailing at $2 a pill. According to clinical trials by GlaxoSmithKline, there’s zero evidence that Treximet suppresses a migraine better than a two-pill regimen of naproxen and sumatriptan. Naproxen is a nonsteroidal anti-inflammatory drug that treats pain or inflammation caused by arthritis, bursitis, gout, etc. And sumatriptan is often used to relieve the intensity of migraine and cluster headaches. Though you might save a bundle using a two-pill regimen, my son would insist that I advise you to discuss this with your doctor before making a change.
XX, I’m sorry to inform you that you don’t have a $7,000 profit in PTX; rather, you have a loss of $400. In October, PTX was trading between 45 cents and 65 cents a share, and the board of directors decided to declare a 1-for-10-share reverse split. A reverse split is the opposite of a conventional stock split and results in a decrease in the number of shares outstanding. For example, in 2009, Citigroup (C-$60) was trading at an embarrassingly low $5 a share, so the board decided to enact a 1-for-10 reverse split, lowering the number of shares outstanding by a factor of 10 while increasing the stock price by a factor of 10. A higher stock price always looks better to institutional investors, most of whom shy away from buying stocks trading at less than $5 a share. Still, after the split, the total value of the company remains unchanged. So your 2,000 PTX shares, which cost you $1,000, became 200 shares, and seeing as they trade at $3, they’re worth $600.
PTX also produces and sells a dozen other drugs, none of which seems to excite the medical community. PTX sells its drugs through its sales force, third-party sales organizations and its subsidiaries. The 274-employee company, headquartered in Morristown, New Jersey, has $30 million in cash, 8 million shares outstanding and a negative book value, and it expects to post a loss for 2017. Sell your shares and take your loss.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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