Reply to Dooby that would not post (after 12 tries) on Yahoo
Dooby:
I'd assume a 55% dropout rate - that's off the top of my head based on trial results. Infusion reactions, non-responders, etc. As far as market size see my earlier post on Hamelin numbers vs. FDA. Going forward I'd use FDA and think SVNT would do well to capture 30K patients. Pricing? A premium to TNF Alpha is suggested. I'm not in the camp of $30K to $50K. Conservatively I say $25K. That would mean 30K x $25K = $750 million US revenues. They say EU is larger market. But IMO pricing over in EU will be weaker so I'm using $450 million EU revs. So we're at $1.2 billion. I don't buy the 3 to 7 times revenue multiplier to get a fair valuation. SVNT isn't in that strong of a negotiating position. I'm using a factor of 2. So we get $2.4 billion valuation with 68 million shares out. NOw we need to discount this back to get some NPV since peak sales are likely 5 years out (more in EU as drug won't reach patients until 2012). I come up with an estimate of $1.8 billion today. That's $26+/share. I'm backing out another $1 to $2/share due to the position SVNT is in. Now, had they pursued sales of Euflexxa a few years ago in the US they'd have an established sales force in rheumatology, and going it alone would be a more serious consideration. But that decision to not sell in the US - and pay Ferring $18 million to back out, was another blunder on the part of mgt. IMO.
I have no clue as to what kind of chaos is going on in NJ and/or with the board. Whether they're scrambling to revive any buyout interest or are considering partnering proposals (which they likely didn't solicit recently as they did 2 years ago). So partnering may be a long shot also.
If they go it alone I'd like to see Hamelin & Yachmetz pushed aside. I think they're both liabilities at this time. Use them for a transition period while a seasoned CEO, with launch experience, gets up to speed. I'm fine with a new guy getting options, a big salary and incentives to make this successful. I'm much less confident the current mgt. team can succeed. Past execution being my primary reason for being skeptical.
Justa,
ReplyDeleteI do not have my spreadsheet model with me at work but will post if I can here. Alex, can I post a spreadsheet in this blog. Your assumptions are close to mine although I used a 50% factor for adverse reactions. I also used different treatment periods and $2K per month treatment. Bottom line, I came in with valuation of $21 to $23. When it hit $23, I should have sold since pigs get slaughtered. I am normally very disciplined but was not in this case. I had sold off all my options which was good but kept the 5K in stock. I can only blame myself for being a pig. I have doubled down in the last few days. It seems to be stablizing but I will not add more. I still want to maintain a low percent in my portfolio. I am having a hard time finding stocks to buy. I have over 50% cash since I recently sold AMGN. I will buy AMGN anytime it goes below $52. The yahoo board is a complete mess. I cannot spend the time to sort thru all the bullshit.
What's funny - if not so sad - is that I (and I imagine a number of the old timers) could have made a tremendous amount of $$$ on SVNT over time. I've done well trading. But in hindsight not selling at $28 in 2008 was foolish although I did sell some in the $20's then. I remember saying "take any uncertainty out of the equation" (as in Sell before something goes wrong). I got caught up a bit in Xu's bullish $38 to $40 buyout forecast when she was at Credit Suisse. To think of the ultimate opportunity to re-purchase it at $3 after ACR and then ride it up to $20+ yet again makes me sick.
ReplyDeleteI too have a lot of cash, about 35%. and not finding a lot to buy. I trade semis a lot: ATML, PMCS and SANM. CTV (Commscope) may be taken private by Carlyle Group which has caused a stock I trade (PWAV) to show some strength, hanging around $2 and beaten down the past few years.
Busser -- I just re-sent to you an invitation to be a "poster" here to the email you gave me. I don;t know what you need to do to accept it, but please do and feel free to post your model....Jay Hains/aa
ReplyDeleteA little more on buyout issues. I've felt the big discrepancy in the 90K (FDA) vs. 170K (SVNT) was an issue in negotiations as well as what ultimate pricing will be. Think of the range of valuations you might arrive at -- from the most optimistic -- using some percent capture of the 170K times a high price per patient of say $50K towards a more pessimistic low percent of the 90K and a lower end pricing of maybe $25K. Now we might add in a 3rd level of complexity; that being how long the patients will be on the drug. I've felt for a while that if uric acid levels drop to a normal range and tophi is resolved then a Dr. and/or insurance wouldn't continue to cover Krystexxa if a maintenance drug like Uloric can keep the patient in check for a while. But if the patient slips back to high uric acid and tophi returns then it makes sense Krystexxa again becomes a necessity. So even though some patients were on drug up to 3 years, with average across all patients 19 months, and most not wanting to discontinue treatment it becomes a different game when payment comes into play as an FDA approved drug. So I can see how and maybe underlying reasons as to why no deal has been reached. It may come down to big pharma watching it roll out -- see how it ramps up, assess issues patients experience and then makle a more educated guess as to how much SVNT (K) might be worth. As of today it seems more like a crap-shoot to determine any meaningful value. Unless .... mgt. really wants to sell the company and will be willing to back away from 170K and compromise a bit in negotiations, likely meaning a low $20's takeout. That though could lead to some attorney filing suit saying this isn't the best offer (as has happened recently in at least 2 companies I'm aware of). Any thoughts?
ReplyDeleteThat would appear to put management in a no-win situation....
ReplyDeleteI think we are on the right track relative to the uncertainties facing a potential buyer....multiplied by the anticipated ineptitude of the rollout coming up.
I have always felt that K would be used to bring uric acid down to acceptable level and then a maintenance drug would be used. I have built that into my model by saying users would be on drug 9 out of 12 months per year. Could be more and could be less. In any case, the best scenario is to go it alone with a marketing agreement for the ROW. That way they can let the drugs sales maximize shareholder value. We just need to hire some higher and more capable upper mgmt people who introduced a drug before or lease them for a while. That should not be hard with the drugs prospects. I see no reason why sales will not be in the $500 Million level in three to four years. Once sales are demonstrated, stock will move. I can afford to be patient for another 6-9 months and trade in between.
ReplyDeleteNovember 1, 2010
ReplyDelete10:08 EDT SVNT
theflyonthewall.com: Rumor: Savient moves up on renewed takeover speculation
Know nothing more -- ran up a bit then retraced to low $12.50's. Over 1.5 million shares in an hour. Likely speculation but the $10/share pullback from $22.50 certainly could bring interested parties back to talk a bit more
I see SVNT weak today with market up big. Guessing there may be some concern about whether SVNT might announce in their PR tonight or on the call tomorrow that they'll be doing another stock offering to raise cash. Cash levels at Q3 will be important as well as how much the warrants produced. I'll be a bit PO'ed if they go and do another offering further diluting shareholders.
ReplyDeleteGreat discussion thanks...I am new to this name. I am also modeling NPV in the low 20s. Seems like there is clearly value in the drug but execution will be the key. What is the source of skepticism of current management? Does Hamelin not have launch experience?
ReplyDeleteDo you think there is a real chance they will announce a stock offering? They should have at least 100 million in cash right now due to the warrants even assuming cash burn has started to ramp up.
I've traded SVNT since 1998 (BTGC). I also built a core position over time. The mgt. of this company has been horrific IMO virtually all these years.
ReplyDeleteSome of the blunders include:
(1) revolving door for CFO's - probably 8 different CFO's in the last decade
(2) were on the verge of being delisted a few years back. Had to restate about 5 years of financials.
(3) a number of failed acquisitions and/or drugs (Myelos and Prosaptide are 2 examples)
(4) The last CEO is gone 2 years now with no CEO named to replace him. Last CFO was terminated. CMO (Chief Medical Officer) also is gone. Sr. VP of Quality & Regulatory Affairs resigned.
(5) Disaster at 2008 ACR Conference (stock tanked to sub $3)
(6) The BLA for Puricase/Pegloticase/Krystexxa was originally expected to be filed in late 2007. After a number of delays they filed late 2008. Then re-filed amended in early 2009. Then FDA rejected it in August 2009 with CRL. Finally get everything refiled in 2010. So the delay in getting approval has been a couple years.
(7) Two stock offerings that have diluted shareholders 25-30%. One offering was in the low $5's - panic offering IMO.
(8) Approval for a drug - Euflexxa - a few years ago. They got Ferring to take overseas sales. SVNT was to sell in US. Last minute SVNT backs out and relinquishes all rights and Ferring gets worldwide sales. SVNT pays $18 million penalty to Ferring. That was their entry in rheumatology.
(9) Had they sold Euflexxa they'd be in a MUCH STRONGER negotiating position today relative to Krystexxa.
(10) SVNT basically liquidated the entire company. Back in 1999 or 2000 they were doing about $100 million in revenues.
(11) Built the plant in Israel(Sim Fass, founder & ex-CEO) behind this. Cost a LOT of $$$$ and when they sold the plant and drugs I believe the lost $$.
(12) Continually evasive on conference calls - been that way for a long time. Thus, not a lot of institutional respect for the company or mgt. IMO.
There's more but it's too painful to think back. It's like these guys have a lottery ticket but can't figure out how to cash it in.
Stock offering is not required IMO. But ... mgt. seems to be a worried group - wouldn't be surprised if they decided they needed to raise more $$ which is contrary to what they've stated on past conference calls. But then again I don't think they ever expected they'd not have a deal done by now.
They're a company of about 40 people. They cut 30 or 40% of employees a year or so ago. Skeleton crew with minimal experience in getting a new drug to market IMO.