Savient Pharmaceuticals (SVNT) is trading about 60% higher in afternoon trading on Friday, and the circumstances surrounding the massive gains a bit perplexing. Savient, a specialty biopharmaceuticals company, has a drug called Krystexxa that is used to treat gout patients. This drug has been the subject of an FDA review since December, and today the FDA released a statement saying that, although the drug does seem to work, there still may be significant health concerns associated with the treatment. The drug has not received approval and there will be an additional panel asked to study the drug at the request of the FDA.
This FDA review ended in an inconclusive fashion, after already delaying its findings once, it would seem to be bad news for the company. In the most recent trial more than twice as many patients on the drug reported serious side effects than those taking the placebo, and there were six participants that died as a result of heart problems associated with the drug (as opposed to 3 on the placebo). Those results are inconclusive in the opinion of the FDA because many of these patients had pre-existing conditions. However, the stock is having an amazingly successful day because the FDA says that the drug did help relieve swelling and lessen the painful flare ups associated with gout. 
The market’s reaction is certain not what I would have anticipated from the potentially damaging evidence. Overwhelmingly, analysts were positive on the news of Savient, as Collins Stewart analyst Salveen Kochnover said in an interview, “The tone was very positive in the documents. There is really nothing unexpected in the documents.” There were other analysts who wrote opinions coming into the day suggesting that this is what they expected. The fact that this relatively positive news was pretty much what industry analysts expected, it is even more surprising that the stock is up so much today; nothing that was said was particularly surprising or unexpected.
This is a bit of a puzzle, first the FDA results are mixed as they are still not ready to approve the drug, but they cannot dispute the fact that it does work. Furthermore, analysts both before and after the documents were made available said that the overall tone was positive but it was nothing that was not expected. That doesn’t seem to add up to a 60% advance in one day, but the market is never wrong. If this is the kind of volatility that we can expect when the drug gets moderately positive news, what can we expect when the results of the panel are released later this summer?
As for Ockham’s take, we are currently neutral on SVNT’s valuation. The company obviously has a lot riding on Krystexxa and with the wild swings like we have seen today, it is difficult to get a read on the appropriate valuation. Currently, the company has negative earnings which is always a red flag, but if this drug gets approval all bets are off.
