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Savient Pharmaceuticals (SVNT) does not seem to have learned from past mistakes. The New Jersey biotech raised the stakes on its last failed attempt to find a big pharma marketing partner for its gout therapy Krystexxa by seeking a trade sale, and lost close to half its value Monday after it announced it will now fly solo (Savient's broken promises cause share woe, September 30, 2008).

The decision puts the company in the unenviable position of having to draw heavily on its $89m cash pile to build a commercial infrastructure, something it always hoped would be handled by a partner or buyer. Commercializing the drug itself is not an unattainable goal, as Krystexxa (pegloticase) is a specialty product for patients who fail on first-line treatments. However, with widely varying estimates on the commercial prospects of the product, it is not at all clear what the payoff will be in the long term (Savient needs to deliver partner sooner rather than later, September 15, 2010).

High stakes

Being under fire from investors is not a position occupied by many companies who have just received approval for a product flirting with $1bn in net present value. However, a boardroom reshuffle followed the 2008 partnership failure, with the resignation of chief executive officer Christopher Clement and firing of chief financial officer Brian Hayden. Savient's current managers have been in place since then, so raising expectations of a trade sale was a gamble with particularly high stakes.

In a call with analysts Tuesday, chief executive Paul Hamelin would not discuss the efforts to sell the company and restricted all questions to Krystexxa’s launch preparations, still evidently believed to be a viable plan B if one that has now been forced upon Savient.

Mr Hamelin said doses of Krystexxa have already been packaged and labeled in anticipation of a December launch, assuming FDA approval of marketing materials, at which time pricing will be announced. Savient is ready for a soft launch next month with materials ready to be distributed at rheumatology and nephrology meetings in the US, and they are preparing to hire a sales force of 60 for training in January.

The company also plans to file its European marketing authorization application in January.

Asked if Savient would turn to the capital markets in the event the launch drained the cash pool, Mr Hamelin did not say no, but added that the size and distribution of the market, which the company estimates at about 170,000 patients, makes for more manageable launch costs.

“One of the reasons we’ve always liked the market is it does not require infrastructure build. It is a specialty product,” Mr Hamelin said. He added: “Launching a product is a complex matter and there are a lot of variables. We are going to be judicious in our spending.”

Skepticism

After Monday’s losses, Krystexxa’s NPV of $930m is higher than Savient's market capitalization of $816m, according to EvaluatePharma’s NPV Analyzer, indicating all acquisition premium has been squeezed out of the share price.

The varying opinions on Krystexxa’s commercial prospects appear to stem from uncertainty of the market size. Certainly, many analysts on Tuesday’s call were not buying Savient’s patient number estimates.

While Mr Hamelin would not be drawn on whether that skepticism was a factor in the failure to seal a deal, it seems readily apparent that the product is not attractive either because of its perceived commercial prospects or because of Savient’s asking price.

Investors have been left to guess as to the cause of the breakdown. Given that Savient’s management chose to take such a big gamble and intends to press on and spend heavily on a still uncertain product, Monday’s exodus is no wonder.

Source: Savient Angers Investors by Flying Solo