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business newsSavient Sinks, but Will It Fall Further?
By
Brett Chase
May 06, 2011 11:20 am
Even though the shares dropped by almost one-fourth Thursday, expectations for Savient and its new gout drug may be overstated, an analyst says.
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The company said the loss was due to additional costs related to the launch of gout drug Krystexxa. The shares are down 1% Friday, trading at $8.50 in morning trading. They’re down more than a third in the past year. A buying opportunity? Not according to Leerink Swann analyst Joseph Schwartz.
Schwartz not only lowered his investment opinion of Savient to sell from hold Thursday, he slashed his 12-month price target to $4 a share from $9.
While some analysts believe Krystexxa will be a blockbuster drug, Schwartz says he believes the market opportunity is overstated. He says the company needs to generate more data to convince doctors that the drug is safe and effective in a broad group of patients. There are an estimated 3 million gout patients in the US and Savient is targeting more than 100,000 with severe cases. Schwartz estimates the actual patient market for Krystexxa is 30,000 to 60,000. He bases his opinion on conversations he’s had with specialist doctors who consult with Leerink Swann on markets for new drugs.
Savient won US approval in September to sell Krystexxa and some analysts predicted the drug would eventually exceed $1 billion in annual sales.
Savient also energized investors last year by saying that the company was looking for a buyer and would hope to sell shortly after Krystexxa approval. That didn’t happen, and when Savient reported no progress toward selling in late October, the shares -- then trading at almost $22 each -- fell by more than 40%.
The stock has still had a decent run over the past several years and its market value has swelled to north of $600 million, which is too rich for Schwartz.
Savient’s “value does not fully account for launch challenges, the need to generate more data to make physicians (and) patients comfortable, and overestimates the ultimate market opportunity for Krystexxa,” Schwartz says.
In January, Savient hired former Eli Lilly (LLY) and ImClone executive John Johnson as CEO. The company had been operating without a chief executive since late 2008. Before joining ImClone, Johnson was an executive at Johnson & Johnson (JNJ). His mission is clear at Savient: Successfully launch Krystexxa in the US and overseas.
Given his short tenure and the fact that the drug just hit the market in late February, Johnson hasn’t had the time to prove that he can get the job done.
“In the short period of time since our launch, we have learned a great deal and we now have a clearer picture of how we can most effectively accelerate the market introduction,” Johnson says in a statement Thursday.
But in Schwartz’s view, Johnson doesn’t have a winning product to be successful.
No positions in stocks mentioned.
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