Savient Pharmaceuticals: Glimmers Of Hope?

This article is now exclusive for PRO subscribers.

It's been a long arduous ride for Savient Pharmaceuticals Inc (NASDAQ:SVNT). From a high of $28 all the way down to $0.62, investors have basically left this stock for dead. And rightfully so in many ways. The company is bleeding cash as the launch of KRYSTEXXA (drug approved for the treatment of gout) has been much slower than expected. And to top it off, a major debt holder of SVNT's, Tang Capital, filed a suit against Savient claiming that it is insolvent.

Shortly before Tang filed this suit Savient went public with plans of diluting its stock and note holders further through a $100 Million mixed shelf offering. Being a note holder to the tune of $39 Million, Tang most likely wanted to avoid dilution as a result of the proposed debt restructuring and felt that its only solution was to file suit against Savient.

However, fast forward a few months and Savient received a favorable ruling in the Tang Capital Litigation on the grounds that "the plaintiff note holders do not have standing to bring an action to appoint a receiver for Savient and that an event of default has not occurred under Savient's convertible notes."

So where does this leave Savient? Well for one it is still bleeding lots of cash. As of 3/31/12 it had about $130 Million in cash and $177 Million in debt, although subsequent to the first-quarter close SVNT underwent a significant debt restructuring. On May 8, Savient issued a press release stating:

This transaction allows the Company to extend the maturity of approximately 50% of Savient's existing debt, is cash neutral for the next three years to our interest payment obligations and provides an infusion of approximately $44 million in immediate net cash proceeds," said David Y. Norton, the Company's interim chief executive officer. "With this transaction, Savient believes that its cash and cash equivalents provide sufficient liquidity for at least the next two years.

So with financing needs out of the way for the next 2 years, SVNT can go back to focusing on growing the business, reducing costs and attempting to get new applications of KRYSTEXXA approved, including getting approval to use it for the treatment of kidney failure.

On July 9, Savient announced the hiring of a new CEO and a major restructuring program that will eliminate $56 Million in expenses annually.

Additionally if you consider just the revenue growth of SVNT over the past 8 quarters, perhaps it has just been the case that the launch of KRYSTEXXA was only slower than expected, but still may have the same potential that many investors saw when they bid shares up to $28.

Take a look at the revenue growth over the past 8 quarters:

q1 2012 - $3.53 MM (+174%)
q4 2011 - $3.71 MM (+286%)
q3 2011 - $2.58 MM (+161%)
q2 2011 - $1.98 MM (+101%)
q1 2011 - $1.29 MM
q4 2010 - $0.96 MM
q3 2010 - $0.99 MM
q2 2010 - $0.99 Million

While investors have every reason to be negative on this stock given its performance, there are some positives that might warrant higher prices, as follows:

  1. It is expecting to slash over half of its overhead costs with the restructuring efforts
  2. It restructured a bulk of its debt and pushed out the maturity dates past 2018
  3. The Tang Capital lawsuit appears to be frivolous and appears to be more an issue of a note holder upset with potential dilution than anything else.
  4. It is seeking European Approval and expanded usage of the drug in related illnesses like kidney disease, which could warrant some upside.

Savient is a risky investment, there is no denying that. However, with over 2 years of cash on hand and potentially more given recent restructuring efforts, it might be a bit premature to write off KRYSTEXXA. The launch has been slower than many people expected but just because it has been slower doesn't mean the same potential isn't there. Savient still has ample time on hand to prove that the value of the company is worth more than the $50 Million it trades for on the open market.

Disclosure: I am long SVNT.