So, Cramer called Savient (SVNT) one of his top speculative picks of 2007. His stated rationale includes great management, the drug Oxandrin, and Puricase for gout. I won’t try to assess management’s greatness or lack thereof, but we can poke plenty of holes in Cramer’s thesis, even if we assume Savient is secretly run by the top brass of Gilead (NASDAQ:GILD) and Genentech (Private:DNA).
Oxandrin is the simple part of Cramer’s bullish thesis to dismantle. The drug has gone generic. The shocking thing is that Savient lost its court case and allowed an authorized generic to launch BEFORE Cramer “initiated” with a “Top Pick” rating. Says a lot for his due diligence....
That brings us to Puricase. Puricase is a pegylated version of an enzyme not found in humans called uricase. Uricase metabolizes uric acid. Patients with gout have elevated uric acid and deposit uric acid crystals into their joints and tissues. Give them uricase, uric acid levels drop considerable, the gout is cured. It’s a great story, and I wouldn’t dispute this basic story. The issues are: what are the risks to positive phase III data, and what is the commercial opportunity for Puricase if the data are positive? At Savient’s market cap of $800 million with no other assets except $200 million in cash, the market is clearly assuming the phase III data are a slam dunk and that the drug can likely achieve sales of over $150 million.
First, risks to the phase III trial. While I think the trial is a better than 50-50 shot at working, there are issues that create risks that should not be understated (one can see the data in the abstracts available at the websites for the annual meetings of the American College of Rheumatology and the European League Against Rheumatism). 33 of the 41 patients in the phase II study developed antibodies against Puricase; 11 experienced “rapid clearance” of Puricase and 5 of those had “persistent loss of uricase.” These are called neutralizing antibodies folks – since uricase is not a human enzyme, the immune system sees it as foreign and makes antibodies to it in an effort to clear it from the system. Rasburicase, the unpegylated form of the drug sold for the treatment of tumor lysis syndrome, induces neutralizing antibodies in 64% of volunteers after 5 doses according to its product label. The pegylation is supposed to shield uricase from the development of antibodies, but obviously that protection is far from complete. Incidentally, the Rasburicase label also includes the dreaded black box warning because of injection reactions, including anaphylaxis (more on this later).
So, if 27% of patients developed antibodies that partially or completely blocked the function of Puricase by only 3 months, what percent will develop neutralizing antibodies by 6 months? Could it be 50% There’s no way to know – thus, this is a significant risk to the trial being positive and, even if the trial is a success, this will be an important factor in the commercial viability of the product. After all, all those sell side models basically call for refractory gout patients to go on Puricase for chronic therapy – but that won’t happen when a substantial number develop neutralizing antibodies.
The other interesting data in the phase II trial relate to the number of patients with infusion reactions. The abstracts show 18/41 had infusion reactions of some kind, and 9 patients (22%) were withdrawn from the study and another 3 patients (7%) were re-challenged and then withdrawn. That’s 29% of the study that could not tolerate the infusions; again at only 3 months! How many more will develop allergic reactions to the drug by 6 months? The company has tried to improve matters by infusing the drug over a longer period and pre-medicating with anti-allergy medicines but again – think about the commercial implications here. It is one thing to assume the hassle and liability of infusion reactions when treating life-threatening conditions. But what rheumatologist is going to want to have to resuscitate a gout patient who anyphylaxed after receiving an IV infusion of Puricase?
Between the neutralizing antibodies and the dropouts due to adverse events, one can’t really be certain what the results of this trial will be at 6 months. We could have 30% of patients out of the trial from infusion reactions and another 50% with neutralizing antibodies at the 6 month time point, and I am not so certain the phase III results are positive if that happens. I’m not saying this WILL happen – but it is a real possibility given what we know from the phase II trials, and Cramer and the market are not factoring in this risk at all.
As far as the market goes – yes, gout is common. Data generated from self-reporting questionnaires put the prevalence at about 1% in the US, but self-reporting inflates the true prevalence by up to 50%. The actual population is probably about 2 million patients in the US. But remember, Puricase is by no means a front-line drug, and how one thinks about the treatment refractory population is critical. Estimates are that only 10% of UNTREATED gout patients progress to gouty arthritis, but most of these patients will have a benefit from allopurinol, so perhaps we are looking at only the 5%-10% of these patients who cannot tolerate allopurinol – this means the population possibly eligible for Puricase may only be 10,000-20,00 patients in the US. The number of patients with truly uncontrolled gout may be half that number.
Beyond that, one has to consider how Puricase will be used. With the high rate of neutralizing bodies we have seen in only 3 months and the risk of infusion reactions, it is a pretty safe bet that rheumatologists will want to reserve Puricase for the worst of the worst, and will likely only treat for short periods of time in order to reduce the likelihood of antibody development. Will a black box for infusion reactions put a crimp on marketing efforts? Unknown at this time.
Finally it is important to remember that there is little proprietary here. Uricase is not patented and people have been playing around with the non-pegylated form in gout for years. Pegylation is not patented - anyone could easily contract with a company like Enzon or Nektar to produce their own pegylated uricase. Given all the attention Savient has gotten of late, one wonders just how many companies are already doing that.
Disclosure: Author is short SVNT
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