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
I wasn't impressed with the call. When Yachmetz said "one more thing before I turn the call over to Paul" I knew he was going to mention the possibility of raising more cash. I may be wrong but lots of TFG patients might be seeing general practitioners since there has been to effective treatment for TFG. So penetrating the market may require this 60 person sales force to go beyond the rhematologists/nephrologists sector. I think it could be a slow ramp up for revenues - hope I'm wrong. 4000 rheumatologists, 800 nephrologists and 1700 centers is a lot of territory to cover. I hope they can find high quality sales reps on such short notice. Yeah, unemployment is high but can you attract the right people with a single drug (to sell)?
ReplyDeleteAnother concern is how will insurance handle approvals when a patient has shown considerable improvement. We can quantity the uric acid levels but what about tophi resolution? Will treatment be covered until tophi is essentially resolved? Will insurance approve treatment after that stage? I know the average time on drug was 19 months across the entire patient population from the trial and OLE with some on up to 30 months.
With shares outstanding from 67.7 million as of end of Q3 to 70.3 after warrants were exercised that's about 4% dilution. IMO that's part of the weakness today as it's down 4-5%.
Earlier they'd said EU application to be filed Jan. 4, 2011. Today he said it'll be filed in Q1 2011. Slipping possibly?
Last, Kim Lee brought up revenue recognition. They said it will be recognized when received by the facility. So how will that be billed pricewise? Some patients will be Medicare, some VA, some private insurance, some Medicaid -- each with different parameters on how much is covered by their respective plan. It would seem SVNT wouldn't know how much they'll actually realize bottom line until individual patients have the infusions. For example, say it's $2K/does as mbusser suggested. Maybe BC/BS covers 80%. Maybe patient has some responsibility, say 10%. Each plan has their negotiated rate on what they'll pay. Won't there be some of the cost not covered by insurance that is not patients responsibility. I'm sure my question sounds confusing ....
Actually, the question you raise on revenue is kind of interesting. I had not thought about it that way. How WOULD they know what to book as revenue when each kind of patient is paying a different amount.....
ReplyDeleteThe reason I brought it up is that my current health insurance, through my wife's employer, reimburses to the doctor (facility) a much higher percent of the billed charge than BC/BS in our area. Now BC/BS has higher premiums but negotiated tougher with doctors & providers such that it's less being reimbursed and less out of pocket from the patient. So I'd think the same will hold true with SVNT & Krystexxa.
ReplyDeleteSo I'm baffled as to how SVNT will book the revenues. Unless they book them at full price and then do adjustments later, after the drug shipped has been used on the various patients but that would be a ton of adjusting. Clearly it would seem that the total billed amount will be less than what is ultimately recognized by the company.
Take autos for example. GM sells a Chevy Impala to a dealer. GM realizes what the dealer pays them. The dealer than marks it up a bit for their profit margin. Clearly SVNT won't sell it to a facility for $x and then the facility prices it higher to the patient.
Nov. 30 should be interesting when they divulge pricing.
I believe it will be a close call as to whether they need to raise more cash or not. I don't think that should present a problem if they do since they will begin selling K next month which should allow the stock price to move up and hopefully increase the price at which funds are raised.
ReplyDeleteThe infusion centers are the key right now. Keep in mind, their business is to infuse drugs of which K should significantly increase their business. The problem as you state is those patients who sit in PCP offices or rhuemotoligst offices that are unaware of K. ACR presentations and sales personnel will need to penetrate these opportunities which will take much more time.
In terms of revenue recognition, they will recognize when product is shipped to infusion centers or hospitals. We will just have to watch stuffing of the channel in the future. Should be no problem to begin with. CMS will set the price for Medicare, Medicaid and VA which should be 100% paid by them with none to the individual but pricing is probably the lowest. Private providers will either have a copay or a deductible to cover but as long as it is covered, relieving of pain in patients will drive sales of K. I really do not see any concerns with pricing other than the higher the price the lower the patients to a certain extent. The drug costs should more than offset the hospitalization costs for the TFG patients. That is how the drug should be priced based upon lowering overall cost for the TFG population. Keep in mind if someone is admitted to emergency room or hospital, minimum cost is $1000-$1500 per day. Question is how many time TFG patients are admitted each year.
I am excited about the launch. I am glad I had the opportunity to increase my shares two fold with the drop in price. I now have 15% of my funds in SVNT which is the high end of my tolerance for a single stock. I believe we will be rewarded by a buy out in the $21-$25 range in the next few months or same price in the next year once the drug has traction. Marketing agreement overseas could also propel the drug. I would expect an announcement on this in the first quarter of next year.
The mgmt team has screwed up royally many times but I finally think they got one think right. Get the drug to the patients. Let them speak for the drug.
Just to contrast SVNT to another company, ALIM reported earnings yesterday and had a 4:30 p.m. conference call that I listened to. About 8:30 last night, I called the phone number from the press release for the company's CFO, and lo and behold, he answered the phone himself! I told him I was an investor and we had a very nice chat for about 20 minutes or so which gave me some interesting information. Basically, I was able to run through my questions and I can now "tell the story." Of course, I still do not know whether or not the FDA will approve them on or about their PDUFA date, or whether it will be delayed or whether they will get a CRL, but I understand alot more than before that call. A 180 degree contrast to dealing with SVNT, it would appear.
ReplyDeleteBy the way, this PSDV licenses patents to ALIM for this product. They are due a $25 million milestone payment upon FDA approval. PSDV already has $19 million of cash on hand before that and has a market cap of only $108 million (Yahoo source for that). On top of that, PSDV will get a royalty equivalent to about 20% of ALIM's operating profit on the sale of the drug (technically it actually is a device, not a drug). It seems to me that the operating profit, if it is approved, could run $400 million a year before taxes without too much trouble. That would be $80 million a year in basically costless royalty revenue to PSDV.
Subsequent to September 30, 2010, warrant holders from our April 2009 registered direct offering exercised warrants to purchase an aggregate of 4.6 million shares of common stock either through a cashless exercise or cash exercise. We received $3.4 million of cash proceeds from the cash exercise portion of these warrants.
ReplyDeleteNot sure I understand it -- is the following in the ballpark?
A method of converting options into stock that requires no initial cash payment to cover the strike price. Essentially, a broker briefly loans enough money to exercise the options, and a portion of the stock is sold immediately after exercise in order to repay the broker. In this respect it is essentially buying on margin. The broker is willing to enter this arrangement when that broker feels that the option holder will honor his/her commitment and quickly sell his/her stocks to settle the debt to the broker.
SVNT netted $3.4 million and outstanding shares increased by 2.6 million? Seems like a bad deal in that they netted just over $1.30/share but diluted shareholders.
Wouldn't the company still end up with the strike price in cash under that scenario? I think the usage of the cashless here is that the company pays out only the number of shares related to the intrinsic value of the warrant (current share price-strike price) so the person exercising the warrants doesn't have to pay out any cash. I am still not sure how that would work in this case as I thought the average strike price was $10.67. That would put the intrinsic value of the warrants at about $8.4 million or about 700,000 shares (at $12.50 PPS).
ReplyDeleteAnyone see Xu's notes from late today?
ReplyDeleteShe mentioned that if no transaction happened due to offers being too low that now (with a 50% haircut) that those parties (supposedly BMY and NVS) offers might now not be low any longer. But once SVNT starts hiring sales reps & mgrs. then it gets messy (as far as getting a deal done). Think either company (BMY or NVS) would put forth a formal offer now and force SVNT to divulge it to shareholders, even if it was a lowball offer?
That is an interesting scenario. If they came in at an offer well above market price (say $20) there would be intense shareholder pressure on management.
ReplyDeleteI would guess that once they have the sales force big pharma probably waits a year to see how the initial roll out goes.
I have to research the warrants this weekend. If an offer is put on the table due to the haircut, mgmt would have to bring it to shareholders. In addition, the prospective buyer could go directly to the shareholders with a hostile offer. Having hired 60 people should not be a problem as long as they do not have contracts to enforce. I would expect only the regional managers to have contacts if they are lucky or buyout clauses in the event of a takeover. I would not expect anything for the regular sales personnel.
ReplyDeleteIceking, I think you hit it on the head figuring out the "cashless exercise"
ReplyDeleteThe question then is, why would the company do this if they have to issue more stock later. Why not just force the warrant holders to exercise and get the capital up front now?
Justa your logic is impeccable...relative to potential offers.
ReplyDeleteIf the stock was $22 and the buyers offered $25 management could easily rationalize turning down an offer as "too low."
However, with the stock closer to $11, a $25 would appear to be a Godsend to existing shareholders, few of whom who have a loss at a $25 takeout price.
Therefore, the next logical step for a potential buyer would be to go public with their $25 offer....first thing Monday morning.
The stock would immediately begin trading at or near the full offer price for two reasons; firstly, management would have little ability to oppose such an offer, given that it was a more than 100% premium to Friday's closing; and 2) speculators might think that a $25 offer from buyer number one could smoke out a modestly higher offer from buyer number two.
aa
aa,
ReplyDeleteAnd if you think of it (an offer @ $25), it's a $1.75 billion offer (70 million shares). If we go back to estimates one could make the case that not terribly expensive. Take Xu's estimate @$40K/patient. Say they capture 25K US patients. That's $1 billion. ROW could get $750 million IMO if EU is bigger market (lower pricing expected) and Far East presents opportunity. So the $25 offer would be 1 times WW sales. I guess until we know pricing we're throwing darts and even after Nov. 30 it's not clear about total ultimate penetration in US and worldwide.
And as you said it would be difficult to walk away from a possible buyout that represents a 100% premium to where it's trading today. And even Hamelin, Yachmetz and Gianco with their recent stock grants at $20.27 would make almost 25% on those.
Obviously the "going into weekend" speculation has died since the announcement of no deal and with 4% additional dilution (2.6 million new shares post 9/30) yesterday we saw a decline of a little more than that percentage. That said, you have to wonder if we might see a rumor sometime soon about buyout speculation again.
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.
ReplyDeleteIn 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.