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Strategies & Market Trends : Speculating in Takeover Targets -- Ignore unavailable to you. Want to Upgrade?

To: richardred who wrote (2484)	10/31/2010 11:11:57 AM
From: richardred	Respond to of 7254

Savient Pharmaceuticals: Attractive Opportunity With Catalysts on the Horizon by: James May October 31, 2010 On October 25th 2010, Savient Pharmaceuticals (SVNT) issued a press release stating that efforts to find a strategic transaction for the sale of the company did not result in the sale of the company at this time. Facing seemingly unquantifiable uncertainty, investors sold off about 50% the company’s market capitalization immediately following a trading halt. With Savient shares below the low end of their range prior to Krystexxa approval, a logical assessment of the company’s independent value, and consideration of the reasons a deal may not have been reached provides medium term investors with a compelling opportunity. Arthritis Today and Dr. Badrul Chowdhury, M.D., director of the Division of Pulmonary, Allergy, and Rheumatology Products in the FDA’s Center for Drug Evaluation and Research both support a U.S. market potential for Krystexxa of around 90,000 patients. The company estimates there are 172,000 candidates for Krystexxa treatment within the U.S. On their October 26th conference call, Savient president, Paul Hamelin addressed the concerns of some analysts regarding limited market potential, … if you look at allopurinol prescriptions to give you an idea of where patients reside, 80% of allopurinol is prescribed at the primary care level and we know from our work there, there are a number of tens of thousands of patients sitting in primary care that have chronic gout that’s refractory to conventional therapy and they have high numbers of flares annually and tophi. But there has been no reason up until now for the primary care physicians to refer them to the rheumatologist because all they are going to get at the rheumatologist is allopurinol. A complete transcript of the October 26th conference call is available here. While there is wide consensus that Krystexxa remains a valuable property, maximizing its potential value remains the company’s primary challenge. Given management’s decision to simultaneously pursue both Krystexxa launch and strategic alternatives, the company is prepared to market Krystexxa on its own. The treatment of a disproportionate number of gout patients by a relatively small percentage of physicians, limited necessary infrastructure, and positive talks with potential payers all point towards a successful launch with meaningful market penetration. Krystexxa’s status as an orphan drug for a debilitating condition provides Savient with significant pricing power. Arthritis Today estimates pricing above $20,000/year, while Prescriptionsolutions.com (A UnitedHealth Group Company) estimates pricing of $30,000-$50,000/year, and Gene Mack of Soleil Securities estimates pricing of $25,000 to $49,000. Considering that Savient maintains patent protection on Krystexxa into 2026, I believe a valuation of 2.25X peak sales conservatively values the company. Modeling 30,000 patients at $30,000/year provides 900 million in annual sales. Positive global demographic trends, European sales, and the potential for sales beyond the U.S. and Europe, may prove these numbers to be very conservative. There are several potential positive catalysts on the horizon. On November 5th, the Company will report third quarter results and hold a conference call to discuss their financial condition. While Savient may need to raise a modest amount of cash to support the Krystexxa launch, I do not expect significant shareholder dilution. In December, the company will announce pricing and will launch the drug. In January, the company will deploy its full sales force, and file for European acceptance. In light of management’s view of a large potential market for Krystexxa, and positive fundamental developments, it’s easy to imagine an asking price above $40. We know that at least two interested parties came to the table following Krystexxa’s FDA approval with the stock trading around $20. As management continues to assess all available strategic options to maximize shareholder value, the stock remains highly compelling at current levels. Disclosure: Author is long SVNT seekingalpha.com