Friday, October 9, 2009

Savient Pharmaceuticals (NASDAQ:SVNT): Upgraded to Outperform at Oppenheimer

Oppenheimer is raising their rating on Savient Pharmaceuticals (NASDAQ:SVNT) to Outperform from Perform:

We are upgrading SVNT to Outperform from Perform based upon increasing confidence in Krystexxa's approval and commercial prospects, and a more attractive valuation following the recent stock pullback. Importantly, (1) The announcement of a proposed offering of up to 4.6M shares on 10/7 drove SVNT down ~12%, which we feel is unwarranted and believe presents an attractive entry point. (2) We continue to believe SVNT will adequately address outstanding manufacturing issues and will re-submit data in 1Q10. (3) We are confident in Krystexxa's approval ~3Q10 and believe any incremental short-term (1-2-month) delays are not likely to hinder the drug's long-term prospects. (4) We moderately increase our Krystexxa sales estimates and establish a $17 price target.

Stock Move Overdone; Takeout May Be Possible. We believe SVNT's recent financing strengthens the balance sheet and should fund SVNT through late 2011, a clear positive. We do not believe the raise in any way signals lack of partnership or acquisition interest. On the contrary, we believe an acquisition following FDA approval is certainly possible.

Krystexxa De-risked; Manufacturing Approach Likely To Succeed. We continue to believe SVNT will adequately resolve manufacturing concerns. We expect SVNT to re-submit data in 1Q10 addressing 1) CMC issues, 2) labeling, and 3) REMS data. Importantly, while Krystexxa's label may include a black box warning, we do not believe this will impact its commercial prospects.

3Q10 Approval Expected For Krystexxa. We believe 3Q10 approval is likely, even though 6-month stability data will be submitted close to the new PDUFA date. Given the severity of the refractory gout population, we do not believe FDA wishes to delay approval. Also, any additional delay would be immaterial to SVNT's valuation in our view.

Market Opportunity May Be Underestimated, Introducing PT of $17. We have modestly increased our U.S. and ex-U.S. Krystexxa sales estimates based upon our assumption that a higher percentage of patients with gout tophi are likely to receive Krystexxa. Our increase in worldwide Krystexxa sales estimates results in our PT of $17.

Action: First of all, note that SVNT 4.3M share secondary was priced at $13.29 last night, right at yesterday's close instead of usual discount. Yes, the stock had already tanked yesterday, but still, it is a strong sign that the secondary was very well received.

Also, take a look at how HGSI acted in back in July after secondary. There was so strong demand that the shares traded way above secondary pricing the next day. Might be the case here as well.

The only question is how much to pay up? The shares were down 12% yesterday and I expect this decline to be reversed today. Still, greedy as I am, I wouldn't like to pay above $13.8 or so. More agressive accounts might want to go higher to get more size.

Oh btw, I like the upgrade by Oppenheimer as well. It has all the ingredients of a good call and without the secondary it might be worth around 5% of upside by itself. Now it just adds fuel to the fire.

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