IS SAVIENT AT THE CUSP OF A BIG MOVE? Volatility band spread has collapsed from $20 to $1.30

Savient has been on the roller coaster of roller coaster ride.  First soaring in September on FDA approval of Krystexxa for Refractory Gout, then pushing higher when management indicated it would pursue the sale of the company, then shockingly crashing 50% when a takeover price could not be agreed upon despite 2 or 3 interested acquirers.  Yet looking at the late October 50% crash in the SVNT one would think it must be due to something catastrophic such as a) an FDA non-approval, b) a pivotal trial failure, c) a superior competing drug, d) a patent suit outcome, e) a manufacturing contamination issue, toxicity or fatality development, f) a labeling restriction that will impact its potential market size.  Yet it was none of these issues.

Savient made new highs into mid-2008 then crashed not for company specific issues, along with everything else between Sept 2008-March 09 - particularly companies that would have future need to access the capital market.  So essentially, the stock is trading BELOW where its was in 41 out of the past 48 months - despite having a) overcome clinical trial outcome risk of phase 3 data, b) funding risk having raised capital,  c) and then FDA approval and labelling risk that was received in September.  This for an orphan drug with 7 years exclusivity for a niche market with an unmet medical need that will garner premium pricing.  Go figure.

If there were 3 perhaps more interested buyers above $20, would they not be interested at $12 - especially if they haggling over price while disputing market size?  Or do companies trade like we do, buying high and selling low? We don't have sufficient fingers on our hands to list the number of product starved Pharma & specialty pharma companies walking the plank of the looming patent cliff - all in desperate need of focused premium therapeutics that are about to be launched. The market has penalized them with single digit multiples for this reason.  How many more late stage drug failures can a PFE or LLY absorb as they have over the past 12-18 months? Something has to change for them.

With a 50% bear market in place for Savient, the hot money betting on the takeover or the post-approval price momentum has been flushed out.  The short position has soared from 9 million to 12.95mm or +43% over the past month.  The Volatility band spread has collapsed from $20 to $1.30 - implying a BIG move is very possibly the next event.  We'll see.  At a minimum, a rebound to the pre-approval range of $15 seems possible as value players enchanted by the unique risk/reward profile of SVNT at $12 will absorb the supply from momentum  and year end tax sellers and short sellers.

Perhaps the buyers will wait out SVNT's management failed experiment of unrealistic expectations of a multibillion market size, but at some point the buyers in need of a high value Rheumatology therapeutic to detail, may break ranks with kin and reach for the company - realizing a $300mm - $500 drug is still difficult to come by, especially one that has overcome all clinical hurdles.  A bearish estimate of market size for Krystexxa is ultimately penetrating 30% of 50,000 refractory gout patients (vs 97,000 estimate by the FDA & 172,000 by management), priced at $30,000 annually vs over $50,000 by management, amounts to $500 million - assuming NO off label expansion of the market or the European market that is equal to the US market size.  This is not a market size at the cusp of launch that worth pursuing by product starved big pharma?  Good trading.