Savient Pharma: Today's Pain Could Be Tomorrow's Gain

Savinet Pharma (SVNT) might be one of today's biggest losers, but it could be tomorrow's biggest gainer. SVNT announced that they have been unable to find a buyer at a suitable price for the company. The stock initially dropped over 50% to a 52 week low on the announcement. Was the move warranted?

Regardless of whether SVNT is bought out, the company still owns an orphan drug, KRYSTEXXZA, recently approved by the FDA for the treatment of severe gout cases where no other option exists. The intrinsic value of the company hasn't changed because they couldn't find a deal for an agreeable price. The only change is the value an investor can expect to receive in the short term.

With the drop in price, I'm sure a significant amount of companies have called seeing if management would drop their price to a level likely very attractive with the stock currently trading in the $12s around midday. SVNT could be tomorrow's biggest gainer.

While the news is disappointing to long term holders looking for a buyout in at least the $25-27 range, providing for a nice boost over the stock recently trading in the $22 range, the fact the stock has fallen 50% today provides for a huge gift to those able to buy more. Biotech stocks should only fall 50% when drugs fail to not get FDA approval.

SVNT management likely trapped themselves into a corner by leaving their fate up to buyouts. It's difficult to get premium prices when you place yourself up for sale. Suitors were likely trying to low ball them, leaving the only possible course to move forward with a US rollout. Maybe somebody will step up now that SVNT shows a seriousness to go it alone. As of last report, SVNT has nearly $89M in cash to support such a move.

Bought shares around $12.4 today in the Opportunistic portfolio and currently hold slightly less than a 2% position in the Growth portfolio. Looking for a jump back to the $18 level as reality replaces hysteria and investors come to grips that SVNT has a drug with expected revenue in the $500-900M level. A quick move back up to $18 would not shock us.

SVNT PR:

  • Today announced that its previously announced process to identify, following the approval of KRYSTEXXA™ by the U.S. Food and Drug Administration, a strategic transaction for the sale of the Company did not result in a sale of the Company at this time. The board of directors will continue to evaluate strategic alternatives available to the Company to maximize value.
  • The Company is working toward the commercial launch of KRYSTEXXA, which it expects will be available by prescription in the U.S. later this year.

From Bloomberg:

  • Bristol-Myers Squibb Co. (NYSE:BMY) and Novartis AG (NYSE:NVS) both looked at acquiring Savient and passed because of concern about price, according to two people with knowledge of the matter, who declined to be identified because the talks are private. The board of directors will continue to “evaluate strategic alternatives,” Savient said in a statement today.
  • Savient has enough money to bring the drug to market itself, said Gene Mack, an analyst at Soleil Securities, who owns shares of Savient in a personal account.
  • Krystexxa, the first disease-modifying therapy for gout, a type of arthritis, could be priced between $25,000 and $49,000 a year per patient, said Mack. The therapy may bring in peak sales of $900 million worldwide within five years of going on the market, Mack said (market cap is currently less then $900M which is incredibly cheap for a biotech with an FDA approval providing limited downside risk with the stock at $12).

Disclosure: Long SVNT, BMY