Dealtalk: Savient's gout drug sales key to co finding suitor
Tue, Mar 22 2011
By Esha Dey
BANGALORE (Reuters) - Savient Pharmaceuticals' (SVNT.O: Quote, Profile, Research, Stock Buzz) shares have taken a beating after it failed to find a suitor last year, but the company may still see valuations close to those it was holding out for, if its gout drug's sales reach even the lower end of estimates.
The market was expecting a bidding war for Savient last year, but widely differing views on the drug Krystexxa's sales potential is believed to have led to a disagreement on price.
"We think (a sale) is still a possibility, but they need to prove the drug's potential," Morningstar analyst David Krempa said.
Morningstar named Savient as one of the top 15 biotech companies likely to be acquired in 2011, citing it as a possible strategic fit with big pharma firms with autoimmune expertise.
Gout is a painful type of arthritis in which a build-up of uric acid causes swollen joints. Krystexxa is approved for patients with severe gout and not responding to other drugs.
Some analysts said a launch bringing in about $40 million in sales this year could be lucrative enough to entice suitors given the stock's attractive valuations.
Several Savient shareholders, who declined to be named, said an offer in the high-teens would be welcomed by them.
Morningstar's Krempa said the company is not likely to go for a partnership in the United States and has set up the sales force and hired top people.
In January, the company hired as its CEO former Eli Lilly & Co (LLY.N: Quote, Profile, Research, Stock Buzz) executive John Johnson, who joined Lilly when the pharma giant acquired ImClone Systems in 2008.
Hiring a biotechnology industry veteran should help Savient build the right team to sell its expensive and difficult-to-take drug to doctors, many of whom still rely on a much cheaper generic drug, allopurinol.
But investors are also enthused by Johnson's experience in selling ImClone to Lilly.
"I think right now they (Savient) need to focus on marketing the drug," Global Hunter Securities analyst Kimberly Lee said.
"That is the first step. And after we see some healthy ramp up in sales, an acquisition will be more likely."
COST VS NUMBERS
Savient says there are about 170,000 Americans suffering from severe refractory gout. U.S. health regulators estimate this at about 100,000 patients, with the total gout patients numbering more than 2 million.
Analysts' estimates for actual treatable population, however, range from 10,000 patients to about 55,000.
Still, the drug's boosters say potential sales, even at the low end, could be huge given its high cost.
"Even if they have 10,000 patients on the drug, that's $600 million right there, which is their current valuation," Roth Capital Partners' analyst Andrew Vaino said, though he estimates a target population of about 45,000 patients.
During its latest earnings call, Savient said the total market for the infused biologic drug could go up to 330,000 patients, who were not in the initial patient population.
Industry analysts, however, have termed the new figure as "highly aggressive."
"I am still maintaining my estimate of 56,000 patients," said Global Hunter's Lee, who believes the stock is highly undervalued.
Savient shares were trading as high as $23 in October last year, but shed much of their value after its failure to ink a deal. They are currently trading at $9.35, representing an enterprise value of about $597.1 million, according to Thomson Reuters data.
Krystexxa also has an orphan drug status, which guarantees a 7-year marketing exclusivity, and patent protection through 2026. Savient plans to file for European approval of the drug toward the end of this year.
But not everyone buys into this rosy scenario.
Analyst Joseph Schwartz of Leerink Swann sees the drug fetching a maximum of $500 million in sales. "This is the absolute maximum if everything goes right. If four to five thousand rheumatologists in the United States each put their patients on this drug and they stay on for a year, that would suggest $500 million in the United States," he said.
REACHING PATIENTS
The variance in estimates comes down to gout being a notoriously under-managed indication.
"The difficult-to-control gout patients sometime anguish in the primary care setting and they don't get referred to specialists," Joan McTigue, a board member of the Gout & Uric Acid Education Society, said.
"I think most primary care physicians are not aware that there are biologic agents for difficult-to-control gout."
Reaching this population would involve creating a large sales force that would first have to educate patients, rheumatologists and primary care physicians on treatment options, before being able to sell them on Krystexxa's benefits.
Whether Savient, with a market value of $677 million and a projected cash balance of $287.4 million as of December 31, 2010, has the financial muscle to do this without a larger partner informs much of the debate over the drug's potential.
According to plans unveiled at the drug's launch last month, the East Brunswick, New Jersey-based company's sales representatives will target about 4,800 rheumatologists and nephrologists during the first phase of the launch.
However, Savient expects the ramp-up to be slow initially as it works toward raising awareness about the drug and ironing out the reimbursement process. It plans to target primary care physicians during the second half of this year.
(Reporting by Esha Dey in Bangalore; Editing by Anthony Kurian and Gopakumar Warrier)
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