Thursday, October 28, 2010

Savient Pharmaceuticals (NASDAQ:SVNT): The Price Is Right, upgrade to Outperform - Cowen

Cowen is upgrading Savient Pharmaceuticals (NASDAQ:SVNT) to Outperform from Neutral saying they think Krystexxa could generate WW sales in refractory gout of $600MM and believe the asset is worth $19/share on an NPV basis. Although timing and/or price may have dissuaded potential acquirers from making a bid for Savient, Cowen believes that Krystexxa’s unparalleled efficacy (enabling premium pricing), longevity (biologic), likely high profit margins (specialty market) will continue to make it an attractive strategic asset.

What Just Happened? Savient shares are down >40% following the company’s failed attempt to sell itself. Discussions with management indicate Savient is now focused on building shareholder value via a successful U.S. launch of Krystexxa. While the company will likely need time and additional capital to prepare for a launch, Cowen's view on Krystexxa’s ultimate commercial opportunity is unchanged as 1) they had viewed Savient as fully valued at the time of M&A discussions and 2) they see no reason to question their market assumptions based upon recent events.

Cowen's View On The Key Issues. Following the company’s decision to launch Krystexxa on its own, bulls and bears are now debating multiple issues. They believe there is much unmet medical need in refractory gout and view Krystexxa’s efficacy as unique. As such they expect Savient to obtain pricing in the $50K/year range. Based upon conservative assumptions for the size of the refractory gout population (50-60K patients), penetration (12% in 2015), and duration of therapy (3 or 12 months depending on patient’s response), they estimate U.S. sales of $300MM.

Where Could They Be Wrong? Refractory gout is a virgin market. As such, estimates for the size of the treatable population are wide ranging and uncertain. It will take time before Krystexxa is reimbursed, and the drug’s launch is likely to be slower than consensus expectations.

Notablecalls: I must say I was kind of surprised to see the stock get crushed (-40-50%) on Monday after the co said it would go it alone. Felt like a mis-pricing on the market's part.

Let's not forget big pharma is still out there, desperately looking for (revenue) acquisition candidates. Savient still fits the bill. Management was probably too arrogant following the approval but time & chance happen to us all, eventually. Expectations were reset and the co is still in play.

Bubbleheads at JMP Securities downgraded the stock yesterday morning, which resulted in a big squeeze. I didn't even bother to read the note. I mean guys, really?!

All in all, I think SVNT will work its way back towards the $14 level, possibly as soon as today. I feel large buyers at at work here. Don't chase it pre-market. Let it come to you after open.

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