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Monday, June 10, 2013

Savient Pharmaceuticals: Is the End Near?

Savient Pharmaceuticals (NASDAQ: SVNT) recently reported financial results for the first quarter. These results were rather disappointing to both analysts and shareholders, and do not paint a very bright picture for Savient moving forward.

The news at Savient was rather disappointing. In terms of revenue, analyst estimates were $5.65 million. Savient reported first quarter revenue of $4.69 million. Even more concerning about this revenue number is the fact that net sales of Krystexxa Quarter over Quarter actually decreased by 6%. Savient is relying upon Krystexxa for its hopes of future profitability, and having negative revenue growth does not bode well for the future prospects of the company. Savient's net loss came in at $24.4 million or $0.34 per share. The only bright side about Savient's net loss is that it was a decrease from the net loss from the same period in 2012. The decrease in net loss is mostly due to cost reductions as a result of a corporate restructuring.

Some more important numbers include the fact that the cost of goods sold actually rose by 106% to $3.6 million. According to the company: "the increase is primarily due to a $2.1 million charge to reserve Krystexxa finished goods and raw material inventory." The good news for shareholders is that it does not look as though the charge will be permanent going forward, however, for this quarter it made the margins shrink at a time when Savient could desperately use increasing margins. Finally the cash burn rate is a concern at Savient. Savient ended the quarter with $68.8 million in cash and cash equivalents. Now this sounds nice, except for when you compare to the prior quarter. For the prior quarter, Savient had cash and cash equivalents of $96.3 million. This represents a cash burn of $27.5 million. At this rate, Savient will be out of cash before the end of the next three quarters.

The risk of dilution in that scenario would be quite high. Savient is already burdened by an increase in interest associated with debt, due to additional interest due on its 2019 notes. Savient's interest expense increased by 55% to $7.1 million. As an interesting tidbit, this means that total revenue for the quarter at Savient does not even cover their interest expense, clearly something has to give. Furthermore, with Savient looking at a possible Nasdaq delisting, the diminutive nature needed to raise money would be even higher. It becomes harder to dilute stocks that are trading on the OTC, and it seems as though Savient shareholders would want to see more progress before they start forking over more money for the stock. There also becomes the question of who would want the stock? Savient has done a nice job up to this point of painting a rosy picture but with an alarming cash burn rate and decreasing revenue from its main product, it does not seem like any large institutional investors would want to pick up the stock.

The prospects at Savient look rather bleak. It appears as though Savient will have trouble conserving its cash burn rate, and that its revenues will not increase fast enough to bring Savient to profitability. With a pending delisting added to the mix, it seems as though Savient would have a hard time raising money in order to continue operating. Savient's future, unfortunately, looks rather negative.

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