Three years ago, Savient Pharmaceuticals (NASDAQ: [[ticker:SVNT]]) was riding an FDA-approved gout drug to a stock price in the $20s. Now, its best hope to avoid an outright liquidation is a bankruptcy sale.
Bridgewater, NJ-based Savient completed its precipitous plunge today. It filed for Chapter 11 bankruptcy protection, which corporate entities often use to either reorganize their finances or sell themselves to pay creditors. Savient is choosing the latter strategy. It has a deal in place to sell itself to US World Meds, a specialty pharmaceutical company headquartered in St. Matthews, KY, for about $55 million.
As is the case in Chapter 11, however, a deal is only a deal after a bankruptcy judge approves it. Savient will ask the court to name US World Meds a so-called “stalking horse,” or lead bidder, and see if its offer gets topped at an auction. Savient expects to wrap up the process and close a deal by the end of the year.
For Savient, it’s the sad end to a drug launch that failed to live up to expectations. The biotech company developed a drug known as pegloticase (Krystexxa), a twice-monthly infusion for patients with severe cases of gout that don’t respond to conventional treatments. The FDA approved pegloticase in September 2010 and Savient, which owns full rights to the drug, was thinking big. It planned to use pegloticase as a carrot to sell itself for a windfall, and investors jumped onboard, sending shares past $20 apiece.
Things turned sour in a blink, however. Just a month later, Savient publicly called off a failed buyer search and was forced to try to sell pegloticase on its own. Shares plummeted 50 percent, and have continued to fall over time as the sales Savient hoped for never materialized.
According to legal papers filed with the court, the drug flopped for a few reasons. First, Savient miscalculated its market. It originally thought it was selling to a market of 120,000 patients in the U.S., only to realize with further market research that only a fraction of its targeted patient group—about 9,000 of them—were both insured, and being seen by rheumatologists likely to prescribe its drug. That severely curtailed the market for pegloticase, and Savient had to drive up the price for the drug several times as a result (it currently sells for $5,390 per vial, or over $30,000 for the estimated three-month treatment regimen).
Worse, while pegloticase was initially approved by European regulators, the National Institute for the Health and Care Excellence of England declined to reimburse patients for it, meaning they’d have to pay out of pocket. Savient hasn’t found a pharmaceutical partner to help sell it, and as a result, has never been able to tap into the European market.
The final numbers, as a result, are disastrous. Savient has only sold about $33.8 million worth of pegloticase between its launch and June 30. By comparison, it racked up $141 million in sales and marketing costs alone since the FDA approved the drug, according to court documents.
All that has added up to layoffs, a messy legal fight with shareholder Tang Capital Partners, a debt restructuring, and now, a bankruptcy filing. Savient has just $27.5 million in cash compared to more than $250 million in debt. Its shares, which traded at 57 cents apiece on Monday, changed hands at 8 cents apiece on Tuesday (stockholders are usually wiped out during a bankruptcy proceeding). Now, it’s hoping a few potential suitors will jump in and kick up the bidding for pegloticase.
“The board and management team have conducted a rigorous assessment of all of our strategic options and believe that this process represents the best possible solution for Savient, taking into account our financial and operational issues and helping to unlock the value of [pegloticase],” said Savient chairman Stephen O. Jaeger, in a statement.
