**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
Someone was obviously selling in volume today after price announcement. The pricing was much higher than I anticipated but was a multiple of "Enbrel" pricing as was stated by management. I can only think that they must believe pricing is to high and thus will attract few patients due to health care coverage. The bottom line is what will CMS pay for the drug plus some of the major health care carriers such as blue cross/blue shield, humana, etc. Makes no sense to sell off on pricing unless everyone thinks deal cannot be done since pricing was announced which makes it more difficult but certainly not impossible. Confused over the whole mess. Stock is way to low. Mgmt is going to have to show the market they can market and distribute the drug for us to move now.
ReplyDeleteI'm thinking yesterday's selloff was due to (1) institutions lack confidence in SVNT mgt (which isn't surprising) (2) institutions sold and/or shorted yesterday since they might assume SVNT will burn through existing cash necessitating another stock offering to replenish cash position.
ReplyDeleteEven today with the market up big SVNT is floundering below $12 and that takes into account the analyst updates which were mainly positives (excepting Jeffries).
I think it's possible a deal could still get done but time is their enemy now. Last, with all the uncertainty over potential market size/penetration I go back (like a broken record) to the thought of a buyout with multiple price payouts (say $12 today, then another $x/share if/when revenues hit some predetermined number (as SVNT was expected to do with Euflexxa back in 2005).
I logged onto the CMS site this weekend to determine how K was being covered. I searched by the Jcode (J3590), Krystexxa, and by name gout or gout treatments. I did not get a single hit. Perhaps the site is not current. I then went to Empire BC/BS for which is my company's medical provider and I am the administrator. I looked over the drugs covered by infusion centers and K was not on the list yet. Long drug list by the way with many biologics. I then searched by word gout. Gave a detailed explanation about gout and various treatments. It did list Peg uric acid as a treatment that is being studied. It did not give any prices. I know we have only had less than a week since K is available in infusion centers so I am attempting to find a way to track shipments at wholesale level or find insurance plans that cover K. Has anyone else had success finding insurance plans covering K?
ReplyDeleteThere is a service used by brokerage firms (i.e. you pay quite a bit for it) which tracks the number of prescriptions submitted to pharmacies. Its data comes out with a lag, so I think by the time that we get 10Q4 earnings report, we may know the number of scripts for the month of December.
ReplyDeleteUnfortunately, weak numbers for the month of December, in and of themselves, will have little meaning, in my opinion because it is a holiday month and because it is the first month of sale.
Still, a high Rx number for the month would be promising, indeed.