Biotech Mailbag: Savient's Unsavory Surprise

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Let's open the Biotech Mailbag.

Yasha C. asks, "Could you give us your views on Savient Pharmaceuticals (SVNT Quote) and Arena Pharmaceuticals (ARNA Quote)?

Arena and its experimental obesity drug. Not much has changed with Arena except for the company's stock price. It's lower. These days, that doesn't qualify as news.

Yasha emailed me on Monday at 4:05 pm, after Savient's share price was absolutely shellacked, down 74% on that day alone. I'm assuming he wants to know if the selloff was warranted, or if there is any reason to hope for a rebound.

Savient surprised a lot of people Monday (and not in a nice, you-made-me-breakfast-in-bed sort of way) with new safety data linking its gout drug Puricase to serious cardiovascular side effects. None of the placebo patients in the study reported an adverse cardiac event.

This is not the kind of news met with investor elation even in the most bullish of markets. In today's environment, it's a disaster, compounded by the fact that the Food and Drug Administration is particularly sensitive to cardiovascular risk. (Anyone remember Vioxx?)

Savient, of course, defends Puricase and says most of the patients with cardiovascular side effects remained on the drug during the trial, so no big deal. The company still plans on filing Puricase with the FDA later this month.

I say good luck with that. How does the FDA not delay Puricase's approval pending more safety data? On the other hand, Savient's share price does appear to price in the bad news.

Here's an interesting (to me, at least) exercise in the effect that the dour market mood has on valuation: If you assume conservatively that Puricase can be a $200 million drug at peak with a five multiple and a 50% probability, Savient's $50 million-ish enterprise value on Tuesday implies peak Puricase sales would be reached at the end of 2020.