Savient needs to deliver partner sooner rather than later

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With US approval of gout therapy Krystexxa in the bag, the pressure is now on for Savient Pharmaceuticals to deliver a long-promised buyer. Shares in the company surged 23% to a 12-month high of $18.20 in early trade this morning in reaction to the FDA nod, which was announced last night.

This gives Savient a market value of $1.23bn, about the price that equity analysts are expecting in a takeout, although opinions differ fairly widely. Of course the only opinions that really matter are those of potential acquirers, and Savient is keeping tight-lipped on the sale process. The company has disappointed before on the deal front and shareholders will be hoping for a quick resolution, or nervousness is likely to creep in (Savient's broken promises cause share woe, September 30, 2008).

Approval as expected

As expected, Krystexxa has been approved with a black box warning regarding anaphylaxis and infusion reactions and a Risk Evaluation and Mitigation Strategy (REMS) (Event – Savient's future awaits in Krystexxa approval decision, August 20, 2010). The company has also committed to conducting a post-approval observational safety study in 500 patients treated for one year, to further evaluate the frequency and severity of infusion reactions and anaphylaxis, and to identify serious adverse events associated with the therapy.

Krystexxa is given as an intravenous infusion every two weeks, and will be reserved for a refractory group of gout patients who fail on conventional therapy. This will of course restrict market potential, one of the main reasons for different opinions on the value of this product. While some think only 25,000 US patients will opt to try the treatment, others reckon this number could be four or even eight times as large. How much the company can get away with charging is also a big swing factor, and again Savient is keeping pricing strategy close to its chest. Forecasts range from $25,000 to $100,000 a year.

It is also debatable how big a competitive threat other gout treatments, such as Takeda’s Uloric and RDEA594 from Ardea Biosciences, will pose.

As a result sales forecasts range very widely for Krystexxa. At the pessimistic end sits Jefferies with sales of $122m by 2014, whilst JP Morgan reckons the drug could be selling more than three times as much by then, and has a forecast of $410m that year.

Reasonable price

What Savient has confirmed is that the drug will be available in the US later this year. Shareholders will be really hoping this means a takeover is close; launching without a partner will not be taken as a good omen.

The share price rise today points to optimism that this will happen soon, although the stock market does not appear to share the optimism of all analysts. Leerink Swann lifted its target to $22 from $18 this morning, while JP Morgan was already on $20. Collins Stewart has put a range of $20 to $25 a share for any takeout. Jefferies remains doubtful, lifting its bottom-of-the-range target to $8, from $6.

The net present value of Krystexxa, based on a consensus of sales of $282m in 2016, is $925m, according to EvaluatePharmas NPV Analyzer. This is equal to $13.68 per share.

Assuming potential acquirers hold a similar view of the market potential of Krystexxa and that the current price includes some takeover premium, a bid of around $18 looks achievable. But if nothing emerges in the next couple of months, that price will start looking optimistic.

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