2012-10-09 14:33:16 -
By Scott Matusow
Savient Pharmaceuticals (NASDAQ: SVNT) enjoyed a blistering third quarter, as
shareholders racked up an impressive 363% gain, making it the largest Q3 gainer
in ahead of other companies such as Sarepta Therapeutics (SRPT) 313%, Hemispherx
Biopharma (HEB) 188%, Catalyst Pharmaceutical Partners (CPRX) 185%, and
StemCells (STEM) 154%.
As Savient heads into its earnings release date of October 29th, let's take a
look at their chances of continuing their torrid run. An encouraging
reorganization plan, a revamped and more focused sales strategy, favorable
technicals, an imminent short squeeze, pending European approval for Krystexxa,
and a possible partnership/buyout catalyst looming are all reasons to believe
Savient Pharmaceuticals is poised to head higher, possibly much higher.
Savient Pharmaceuticals, Inc. operates as a specialty biopharmaceutical company
in the United States. It engages in developing
and commercializing KRYSTEXXA for
the treatment of chronic gout in adult patients refractory to conventional
Shares of Savient Pharmaceuticals reached a high of over $23 a share in October
of 2010. With a newly approved drug and buyout talks swirling, shareholders were
buzzing. Unfortunately, when the buyout talks broke down, Savient made good on
its threat to bring Krystexxa to market by themselves. To say the company was
ill-equipped to handle the product launch is quite an understatement. The
management team blindly flooded the market with a large, expensive, and poorly
trained sales force which wasted quite a bit of time with general practitioners,
instead of focusing on Rheumatologists. The slow learning curve and long sales
cycle led to a very disappointing start for Krystexxa. The downward spiral was
pushed along by the hiring and defection of a CEO, continued mismanagement of
expenses, and the Tang creditor lawsuit attempting to force liquidation.
Ultimately, the share price reached a low of $0.48 on July 17th, and many
assumed the writing was on the wall for Savient.
However, just as original expectations for immediate market penetration and
profitability were exceedingly optimistic, so it seems now that predictions of
Savient's demise, including my own, were premature as well.
Let's take a look at a few of the steps that the company has taken to right the
ship and lend promise to the future:
* Entered into definitive financing and restructuring agreements with the
Company's existing 2018 convertible note-holders that raised approximately
$43.1 million in net cash proceeds and extended maturity by approximately
* Promoted and established CEO Louis Ferrari who brings over 30 years of
experience in the pharmaceutical industry, including expertise in product
launches, new product development, international marketing, sales
management, and sales training.
* Were granted a favorable decision by the Delaware Court of Chancery on
certain aspects of the Tang Capital litigation. Savient now awaits a
decision on possible compensatory damages from Tang Capital.
* Implemented a restructuring plan that included a 35% reduction of its work
force across the company. The bulk of the cuts included the portion of the
sales team assigned to primary care physicians. The slimmed down sales force
of 38 key account managers will aim to build on recent momentum by focusing
on Rheumatologists and Nephrologists. The initiatives are expected to save
approximately $56M in annual operating expense in 2013.
* Named John Hamill as its Chief Financial Officer. Investors took the news
very well, because at his previous position of CFO, Hamill helped engineer
the sale of PharmaNet for 100M in 2011.
* Have been proactive in priming the pump in Europe with aggressive marketing
and awareness campaigns as Savient nears expected EU approval for Krystexxa.
Perhaps more importantly the company may be very close to naming a partner
for the European market.
So it appears that Savient has made significant steps in getting its house in
order, but 3rd quarter sales results will go a long way in telling us the
ultimate fate of the company. In its Aug 8th conference call, and again at the
Rodman & Renshaw presentation on September 10th ,CEO Louis Ferrari guided that
double digit sales growth is expected to continue. Earnings are set to be
released October 29th.
The market size appears to be available for Krystexxa, as an FDA press release
upon approval stated: "About 3 percent of the three million adults who suffer
from gout are not helped by conventional therapy. This new drug offers an
important new option for them," said Badrul Chowdhury, M.D., director of the
Division of Pulmonary, Allergy, and Rheumatology Products in the FDA's Center
for Drug Evaluation and Research. Even capturing 10% of this market, in which
there is no competition, could lead to substantial sales numbers for Krystexxa,
as it is administered twice a month at $3,000 a dose. With 100% of the cost per
vial finally now covered through all insurance carriers, the hefty price tag is
no longer a deterrent, and should now help to drive top line revenues
Certainly, current investors in the company are well aware of these fundamental
factors pointing towards a possible turnaround story playing out in Savient, but
let's dig a little deeper into some of the interesting dynamics at play from a
trader's point of view:
Savient Pharmaceutic has a market cap of $168M, with 72.9M shares outstanding,
and a float of 70.4 million shares. Revenues for 2Q 2012 were $4.6m, up 30% from
1Q 2012. Here is where it gets interesting. A quick look at the Yahoo summary
page reveals a staggering 84% of the float being held by Institutions and Mutual
Funds, and 102 total institutions owning shares. According to Etrade, short
interest is 31.72% of the remaining float. With so many shares being held
institutionally, the sizable short interest in Savient could find itself in a
difficult situation if buying pressure continues through Savient's upcoming
Major Holders breakdown:
% of Shares Held by All Insider and 5% Owners: 11%
% of Shares Held by Institutional & Mutual Fund Owners: 75%
% of Float Held by Institutional & Mutual Fund Owners: 84%
Number of Institutions Holding Shares: 102
Major Direct Holders (Forms 3 & 4)
Holder Shares Reported
FERRARI LOUIS 348,577 Aug 22, 2012
CROWLEY RICHARD 341,300 Aug 2, 2012
YACHMETZ PHILIP K 335,484 Feb 27, 2012
JOHNSON JOHN 252,350 Jan 3, 2012
BAHRT KENNETH 203,050 Aug 1, 2012
In fact, a little more searching confirms the theory that shares are difficult
to come by for short sellers, as SVNT appears in the number 4 position on the
Naked Short List-Stocks with Imminent Buy-in. A severe short squeeze appears to
be a real possibility here if Savient is indeed able to post the expected
revenue gains for the 3rd quarter.
Naked Short List - Stocks w/Imminent Buyin
Report Generated on Fri, 05 Oct 2012 13:19:35 -0700
To sort stock lists, click on the header you wish to sort by.
Rec.# Symbol Days $ Last % $ Trade As Of (EST)
Listed Trade Change Change Volume
1 SQQQ 185 36.110 0.080 1,744,618 2012-10-05 16:00:00
2 TQQQ 136 61.560 -0.1 1,133,511 2012-10-05 16:02:00
3 CTCC 122 0.001 0 2012-08-30 13:17:27
4 SVNT 50 2.370 0.040 2,049,671 2012-10-05 15:58:00
5 VCSH 39 80.530 0.090 573,311 2012-10-05 15:59:00
6 VCIT 33 87.960 0.070 318,946 2012-10-05 16:00:00
7 ROSG 26 5.910 -0.53 578,516 2012-10-05 15:58:00
8 PSCM 14 30.370 25,200 2012-10-05 16:00:00
Notice: Quotes delayed by 20min.
The chart looks like it's about to make a turn upwards from a nice Wedge
Triangle. I think it's a good bet the 52 week high is going to be challenged
As investors in the Biotech field, we often get caught up in the promise of new
and exciting drugs and therapies. We look at the potential markets for these
drugs, whip the potential through a calculator, and pop out a lofty number which
then gets extrapolated into huge profits. It's easy to skip over the important
real world step of execution when trying to assign appropriate valuations. Poor
execution of an ill-equipped roll out plan is always disappointing, and to
inexperienced companies with a small product line it is most often fatal.
Sometimes, however, a slow start can be overcome if the drug fills a serious
need, and management can learn to adapt and execute. For patients with severe
gout that do not respond to conventional therapy, Krystexxa can be life
Severe gout is an extremely painful, debilitating disease that can render its
sufferers unable to do common tasks. As physicians become more aware and
comfortable with the drug, it is reasonable to expect continuing increased
demand for Krystexxa. With insider/institutional ownership above 84% of the
float, and the short interest so high, any one of Savient's near term catalysts
could trigger a severe short squeeze.
If the company posts expected strong revenue growth on Oct 29th in unison with
European approval or a potential partner for Europe, short sellers might be
squeezed a bit here on this one.
The full report on SVNT is available at:
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