SVNT Prices Krystexxa at $59,800/Year; Stock Declines Further

**Something is Rotten in New Brunswick**

After collapsing on the news that no buyer for the company could be enticed to make an offer, SVNT shares fell further upon announcing that the pricing for the company's biologic Krystexxa for "refractory gout" would be well above the most bullish street estimates of $50,000 per year. The company announced that the price would be $2,300 per treatment, with a one-year course of treatment encompassing 26 infusions at a cost of $59,800.

The company confirmed that the product would ship immediately to specialty pharmaceutical distributors for use by patients getting prescriptions for the new-fangled treatment, which is disease modifying in nature.

It appears to the market as if only patients without any insurance coverage will ever choose to be infused, leaving SVNT (and its ever-patient shareholders) once again holding the proverbial bag.

To review the current pricing, an annual Rx load of 20,000 patient years per year would generate revenue of almost $1.2 billion annually. Assuming that SVNT could achieve net revenue (before royalty payments) of $30,000/patient year, revenue of $600 million would result from 20,000 patient/year's worth of prescriptions.

OK, let's assume they get only 10,000 patient/years of prescriptions per year at $30,000 net to SVNT per year. That's $300 million in revenue. After 22% for royalties and COGS, that would leave $234 million. After subtracting $84 million for SG&A expenses, SVNT would net $150 million/year before taxes, and about $100 million a year after taxes. If we figure the company must sell another approximately 10 million shares in order to capitalize the product rollout, that would be e.p.s. of $1.25/year on FD shares of 80 million.

The stock trades at less than 10x this scalped (not just "crew-cut," we are talking SCALPED estimate of the market dynamics) earnings run rate.

What are the OTS's (Old Time Savienters) missing?

Jay Hains/aa

Coming SVNT Events

SVNT is scheduled to announce the pricing for Krystexxa on Tuesday, November 30th.

Estimates appear to range from as low as $20,000 for a year's treatment to $50,000 for a year's treatment.

With treatment bi-weekly, a year's treatment would include 26 intravenous administrations of Krystexxa.

I am tending to expect a "headline" price near or even above the high end of the analyst range for two main reasons: It will maximize the amount that is reimbursed by insurers and Medicare/Medicade/VA, and it will tend to maximize the bid level if they get a takeover offer.

Why sell yourself short?

SHIPMENT of Krystexxa will begin on November 30th, and the drug will be available for prescription on December 1.

Many Savienters have been waiting for this day for many years....

Good luck to SVNT employees and its shareholders

ALIM Breaks Out to New All-time High Today

Shares of ALIM are trading at $12.11 this morning, after hitting a new all-time high yesterday of $12.24. The company's IPO was in April 2010 at $11 per share, and the stock sagged as low as $6.30 on July 15th.

I started my position in the name yesterday, having spent the past several weeks engaged in due diligence and trying to get a better feel for "how the stock trades."

I also started a position in PSDV of about equal dollar size, as that name also is very, very modestly valued relative to a potential year-end approval of Iluvien.

These are simply starter, or monitoring positions, designed to force me to focus more closely on the name and I will continue to be doing additional work. It appears that the trigger for the move in both stocks is the passage on the calender of the T-minus six weeks mark. Apparently, the FDA notifies applicants of its intent to hold an Advisory Committee meeting at least six weeks prior to PDUFA dates, which in this case, appears to be December 29, 2010. With no AC meeting scheduled, it appears that investors believe the probability of approval has increased. I previously noted the expectation of Credit Suisse's analyst of a 75% approval probability.

Based on my own due diligence regarding Iluvien relative to Retisert, I now believe the probability of approval for Iluvien is greater than 90%.

An Excellent Blogticle on ALIM/PSDV's Iluview

I have read the article linked to in the title of this post and it is better than most of the sell-side research I have reviewed on ALIM/PSDV. I suggest you take a look at it, too.

Jay Hains/aa

Here Are The Names Discussed Here on The AfterSVNT Blog, So Far

Of course, SVNT

But also
SPA
ALIM/PSDV
ATRI
PLNR
CSCO/MSFT (in comments only)

So, Dear Readers, What Are Some of YOUR Ideas?

Leave a comment with a short story for your favorite name.

Doesn't have to be a Biotech;
Doesn't have to be a Microcap;
Doesn't have to have a High FCF Yielder;
Doesn't have to be a Turnaround

An Year-by-Year Company History of PLNR on its Web Site

Click on the post title to go to the link...........

A New Name: Planar Systems (PLNR): A Pure Value Opportunity

Recently, Planar (PLNR) reported a profit for the quarter ended September 30th, its fourth fiscal quarter. Click on the title of this post to visit the company's home page.....

With about 20 million shares outstanding (I am rounding up for simplicity, the earnings report gave 19.4 million as the FD figure) and a share price of $2.10, PLNR has an equity market capitalization of about $42 million. This debt-free company has almost $32 million of cash on its balance sheet, about $1 million more than a year earlier. The company's cash position means that a buyer of the company at its current price would recoup all but $10 million of its investment just from the company's current cash position. Of course, the company needs some cash to operate.

The company reported Total Current Assets of $96 million compared to Total Current Liabilities of $39 million. The differential of $57 million is just shy of $3 per share, and was approximately unchanged compared to a year earlier. The company indicated that its tangible book value was $3.20 per share.

PLNR generated revenue of about $175.7 million in the fiscal year ended September 30, 2010, compared to $174.9 million in the prior fiscal year. For the recently-completed year, PLNR posted pretax operating income excluding amortization of intangibles of about $1 million, compared to approximately a break-even performance in the prior fiscal year.

So what does PLNR do?

PLNR manufactures specialty displays for multiple markets including military and space, utility and transportation hubs, shopping centers, banks, government agencies, and home theater applications. When you watch CNBC on TV, you probably are looking at some displays made by PLNR. When you see footage from the TV commercial for the Air Force that shows their cyberwarfare exercises on large displays, you probably are looking at PLNR products. A recent contract has PLNR supplying screens that will be used for railroad track inspection on specialty rail cars in China.

Try the web site: www.planar.com

The company has been a poor performer for many years and I am involved in trading/owning the shares in a significant way for the first time this year, despite having "monitored" the company for more than a decade. Why? Management has exited some businesses where they could not compete. The company's shares seem overly punished compared to its robust cash and working capital position. In addition, management appears recently to have been successful in reducing expenses. The growth business opportunity appears to be the in-store retail display business.

Recently, the stock has pulled back modestly after the 10FQ4 earnings report, as management indicated the company would post a loss of a single-digit cents per share in the December quarter, and refused, blaming a lack of visibility, to make a projection for the new full fiscal year ending September 2011. With the stock at $2.10, the company not shedding cash on an operating basis, and tangible book value of $3.20 per share, I think PLNR could well have upside of 30-40% from here to a range that approaches $3.00.

Jay Hains/aa

Sparton Corp Follow Up

The first new idea I presented AfterSVNT was Sparton Corp., a diversified electronics manufacturer engaged in defense, medical, and electronics manufacturing services operations.

I am happy to report that this pick has been a smashing success...so far. (There is ALWAYS a "so-far" when it comes to investing, as long-time "Savienters" must by now realize).

I first posted about SPA on September 21 and the stock closed that day at $5.50. I will use the following days close to measure "performance" for this pick, and SPA rose $0.25 a share the next day, closing on 9/22 at $5.75 per share. As this is written, SPA is trading at $7.75 per share, up almost 35% in about 6 weeks or so. A nice pick, but probably not representative of my long-term ability, otherwise I would have (almost) as much cash as Warren Buffet rather than writing this blog!

Yesterday, SPA reported 11FQ1 earnings for the quarter ended September 30, 2010. The company reported an "adjusted" operating earnings figure of $0.16 a share for the quarter. GAAP e.p.s. was $0.40 per share and included a $0.24/share "gain on acquisition." Revenues would have been down considerably were it not for the revenues acquired via the acquisition of Delphi Medical.

On August 6, SPA closed on the acquisition of the assets of Delphi Medical for a price that the company's management states was less than the fair value of the assets acquired. As a result, their accountants decided that the difference between those figures represents a gain that should go through the income statement. Now, I don't have a CPA, but I do have an MBA, and I dissect financial statements for a living (my day job). I must say that I cannot recall having seen something exactly like this, and frankly, it does not smell 100% kosher to me, accounting-wise. Maybe one of you guys out there with a CPA can set me straight on this issue!

All of which brings me back to SVNT. Justaguy will remember this event, as he was around, and SVNT was still named Bio-Technology General. For several years, BTGC carried an item on its balance sheet listed as "Negative Goodwill." Eventually, they were forced to restate their results to eliminate the "Negative Goodwill" since such an accounting entity does not meet GAAP requirements. I suppose this is a reason why SPA decided to put it through the income statement instead of putting it on the balance sheet where it does not belong.

In any case, SPA remains virtually debt free, with about $2.75 a share in cash on its books, and earnings somewhere in the neighborhood of $0.75 a share as a representative run rate over the past year.

Management has turned its sights from restructuring both operations and finances to restoring growth and searching for acquisitions that can add to profits and cash flow.

I still think the stock is cheap here, but it has had a substantial move over a relatively short period of time and is entitled to a pullback of some sort.

Jay Hains/aa

Discussion on Failure to Consummate a Deal

I'm curious as to others thoughts on why no deal (to date)?

I'm thinking that the 2 big issues are (1) market size potential (2) pricing. The discrepancy between what SVNT says (170K) and the FDA number (90K) is significant. Pricing becomes clearer on 11/30.

I also wonder if BMY, NVS or anyone else felt SVNT needs us more than we need them (for now). In other words, let SVNT twist in the wind a bit knowing the only other alternative is launch on their own. And then they play a game of watch and see what unfolds? Is the drug widely accepted? Do revenues ramp up quickly?

I also faxed the following to Paul Hamelin -- in part to release the frustration with this company and inability to get a deal done.

Mr. Hamelin:

Like many shareholders I was disappointed that no sale of the company has happened to date. A similar experience occurred in fall 2008, when Mr. Clement led shareholders to believe a strategic transaction would occur in Q3 of that year.

I am forwarding to you something I sent to Brian Hayden, ex-CFO of Savient, back in 2008 after the supposed deal for the sale of the company fell through.

Please give some thought to a multiple paypoint buyout of the company. For example, with FDA approval you determine that $15/share (as an example) is fair valuation. Then you set subsequent goals that reward shareholders over time. Perhaps filing the EU application is worth $1/share. And EU approval is worth another $6/share. By the time Krystexxa is (hopefully) approved in the EU there should be at least a year of sales in the US where an additional payment might result. Such an approach to a possible acquisition allows the buyer to not put 100% of the ultimate purchase price at risk upfront.

There is obviously disagreement between what SVNT sees as the TFG US market size (170K) and what the FDA sees (90K). I'm a bit surprised that you have chosen to not go into detail as to how the studies arrived at these numbers. Analysts and institutions seem skeptical of your estimates. And revenue estimates are also varied making fair valuation of the company more challenging.

Last, allow me to share some of the disappointments as a longer term shareholder.

• In 2006 Savient stated they expected to file the Puricase BLA in late 2007. It was finally successfully filed in 2010, a 2 ½ year delay.

• The 2004 FDA approval of Nuflexxa should have allowed for Savient to establish sales in the US and pave the way for Krystexxa. But Savient relinquished those rights and paid almost $18 million to Ferring.

• Savient Pharmaceuticals Enters Co-Promotion Agreement with Ferring for Nuflexxa; Savient to Establish Sales Force Targeting Rheumatologists Upon Sale of Global Biologics Manufacturing Business.
  Business Wire

• The lack of a sales force today (that would have existed w/ Nuflexxa) has clearly weakened your negotiating ability for a sale of the company.

• Two stock offerings in the past 1 ½ years has diluted shareholders almost 30%

• Five (5) years of restated financials and the possibility of delisting a few years ago

• Disaster after the 2008 ACR Conference

• Savient being a revolving door of CFO's (around 8 in the past decade)

• Chris Clement liquidating essentially all of Savient (BTGC plant & associated drugs, Rosemont, etc.)

• Mr. Clement, Hayden, Lamm and Horowitz all leaving the company and receiving considerable compensation

I fully agree with the Board of Directors that the sale of the company will maximize shareholder value. And I trust that you, the Board, along with Lazard and JP Morgan are exploring all strategies. I am surprised that you've been unable to consummate a deal given the revenue problems big pharma faces in the coming years with generic competition. I do hope you consider a multi-paypoint approach as a possible way to successfully sell Savient to a larger company who can maximize sales both in the US and worldwide. I know there are many creative ways to reach the desired end result and I trust you will.

Respectfully,

SVNT: Cashless Warrant Exercise

Contributor Michael posted the following as a comment, but I think it deserves its own thread, so here it is...

Michael said...

I researched cashless exercise of stock warrants. The holder of the warrant has two options to exercise the warrant. In the most logical case, the holder pays the exercise price to the company to obtain the warrants which is based upon the price set when they were distributed. We had two dilutions with different prices. I believe $5.23 and around $10.

In the cashless case, the holder can immediately sell the stock on the open market and pocket the difference between excise price and stock price but it is my understanding that the company would still receive the excise price in return. The other option is to receive the equivalent shares of stock represented by the difference between the stock price and the warrant exercise price thereby reducing the amount of stock issued by the company not receiving any money for the stock issued.

Therefore, it is difficult to state how many warrants were issued cashless vs. bought outright via exercise of stock. I assume all warrants have been exercised now (not 100% sure of this). In any case, stock outstanding increased from 54.7 million in 12/2008 to 66.9 Million in 12/2009 to 70.3 million shares on 11/1/2010 or approximately 15.6 million share increase which equates to 28.5% dilution. They may not all be from warrants since stock options have been exercised in this time frame also.
November 8, 2010 9:24 AM

Have Any of You Guys Looked at ALIM/PSDV?

This name seems to be a replay of the SVNT story: a great unmet need story with a low valuation. I'd love to see if you take a look at one of their recent conference call presentations what you have to say about it

SVNT Revenue Build

If the company acquires 750 new patients per month at an annual revenue level of $36,000 per year, and the patients complete an 18 month course of treatment SVNT will reach an annual revenue run rate of $281.25 million.

We should keep in mind that the company is likely to set the initial price for the treatment VERY high for the simple reason that DRUG PRICES NEVER GO UP, THEY ONLY GO DOWN. Thus, the cumulative revenues will be maximized by the highest price, it seems.

If I haircut revenue by ~10% to an annual revenue run rate of $250 million, apply a 75% gross margin to account for manufacturing and royalties, subtract $60 million for SG&A expenses and apply a 37.5% tax rate, I get net income of ~$80 million, or about $1.15 per share.

Savient 10Q3 Earnings Conference Call Notes

This thread is designed to contain discussion of the SVNT 10Q3 earnings conference call. If you have posting privileges, feel free to "post." If you do not have posting privileges, please let me know and for now use the "comment" facility.

Thanks

JH/aa

Alimera: Correction to Earlier Post

Rather than simply correcting my earlier post on Alimera, I will note the correction here AND correct via editing, the prior post.

In my original post on Alimera, I stated that the royalty due to PSDV was 20% of revenue. This is incorrect. The 20% royalty rate applies, essentially, to pre-tax profits earned from sale of Iluvien. Thus, it is essentially a split of operating profits rather than a royalty payment.

This actually makes a substantial difference when doing a "back-of-the-envelope" estimation of ALIM's potential profitability, since royalties are not coming right off the top, but from somewhere in the middle of the income stream.

Jonathan Hains/alexalekhine

Atrion (ATRI): A Stock I Must Comment Upon

I have been following Atrion Corp. for more than 10 years. This Texas-based outfit manufactures medical products and components used in fluid delivery, cardiovascular, and ophthalmic. There is an "Other" segment that makes valves for self-inflating rafts and for life vests.

The company grows like clockwork. In the recent quarter, the company's gross profit margin reached 47.8% (a record) and the net profit margin after taxes reached 19.9%.

There are only 2 million shares outstanding and the market cap is around $325 million at the recent price in excess of $160/share. Management owns a considerable chunk approaching 20% of the shares, which trade daily in small numbers with a bid/ask spread that frequently is several points.

The company does not court Wall Street at all, and has manufacturing facilities in Texas and Florida that are owned outright. The Florida facility was built for on the order of $25 million several years ago and paid for with a combination of cash on hand, free cash flow, and a line of credit.

I welcome questions from my readers and fellow investors about this company after you guys have done a modicum of DD.

Jay Hains/alexalekhine

Link to Recent Alimera Sciences Confernce Presentation

I recommend checking out this presentation in order to understand the basics of this company's product and opportunity.

Jay Hains/alexalekhine

ALIM Working toward New High Territory Since IPO

I should add that ALIM only went public in April of this year in an offering underwritten by Citi and Credit Suisse via an offering of 6.55 million shares at $11.

The company's lockup expired on October 18th of 2010.

ALIM has a presentation scheduled for 3:55 p.m. today at the Oppenheimer 21st Annual Heath Care Conference in NYC.

Another conference presentation is scheduled for 11/10 at the Credit Suisse 2010 Healthcare Conference in Scottsdale, AZ at 6 p.m. eastern time.

Finally, a third presentation is scheduled for November 17, 2010 at the Citi 7th annual Small/Mid Cap Conference in Las Vegas at 2:35 p.m. eastern time.

I have been unable to develop real conviction about this name for a number of reasons, one being that I have not followed this company for very long. Issues related to patents seem like a potential pitfall, and the shares confront an almost completely "binary event" in the form of the expected FDA meeting in December. There are no options trading on ALIM.

The "realted stock" Psividia (PSVD) which holds a royalty interest in ALIM's product, does have options that trade, but they are extremely illiquid.

Also, there is the issue of just how much improvement in vision is provided by treatment with Iluvien and how that will be evaluated by the FDA. Competitive concerns round out my list of pitfalls: I simply am not familiar enough with alternative treatments.

Finally, there still is the potential that the FDA may schedule an advisory committee meeting relative to Iluvien. I am not even certain that the FDA has these for devices (as opposed to drug or biological products for which they certainly sometimes do schedule Advisory Committee meetings).

That leaves the intrepid stock trader with two simple concepts:

1) trade with the technicals; It seems unlikely that bad news will emerge prior to the scheduled FDA date other than the scheduling of an advisory committee meeting.

2) Honor the time-tested maxim of "buy the rumor, sell the news." The corollary of that advice is to "Buy the sizzle, sell the steak." A trader operating on that basis might try to trade the stock based on technicals and price action, then take out the capital invested, leaving a core position equivalent to the profits to ride on the FDA decision. Admittedly this is a whimpy strategy, but it is one that allows the trader to "live and trade another day" in the event of an adverse outcome.

aa