In biotech, always expect the unexpected.

Over the past 9-mo, Savient Pharmaceuticals ($SVNT) has seen its market cap explode to $1.6B with Krystexxa (pegloticase) approval for treatment refractory gout, only to see its value fall past its pre-approval valuation of ~$1B, and is now down to ~$490M, as of last Friday.

High investor expectations were apparently crushed when the blushing pegloticase bride could not find a sales and marketing sugar daddy, a big pharma to take her under their wing. Throw in some previously unseen personality flaws, such as unsightly manufacturing hurdles, reimbursement challenges, and a series of sales and marketing missteps and here we are today, a company with a market cap equivalent to its enterprise value:

EV = Market cap – cash + debt
EV = $490M (71M shares (5-5-11) x $6.96/share (6-10-11)) – $268M cash 1Q11 + $230M debt
EV = $498M 1Q10

Compared to its post-approval $1.6B EV

EV = $1.5B (67.6M shares (8-3-10) x $22.97/share (9-30-10)) + $78M cash – $0 debt)

at the end 3Q10, this is quite a change, given that nothing about the product itself has really changed, except the marketer. While $SVNT is due for a slow and painful 2011 ramp, they expect activity to increase during 4Q11 and roll into 1Q12, when they expect a specific J-code for reimbursement. You can read their most recent thoughts on commercialization efforts here (May11 conference call).

In the future, there will likely fewer total refractory patients available for treatment, thanks to Ardea’s ($RDEA) lesinurad (RDEA594; more below), an oral, once daily pill, but this was known at the time of approval and did not temper investor enthusiasm for pegloticase.

With lesinurad’s commercialization several years away, and a rather inconvenient dosing schedule (2-hr iv infusion every 2 wks) for Krystexxa, would/could rheumatologists warehouse patients (similar to what hepatologists/gastroenterologists did with their HCV patients to wait for the telaprevir and boceprevir) or would patients simply wait for or select other available treatments?

As summer approaches, there are no near term catalysts, just an increasing EV as they burn through cash. The question is, “How low can they go?” At present, if I assume 50K-100K treatment refractory gout patients, a 10% penetration rate and $62K annual cost, that’s already $310-$620M in peak revenues, as long as the new management team executes. I’d be curious to learn what others think about physician/patient uptake – is 5-10K patients be too many? what if lesinurad is approved? or is the upside, much higher?

Could there be a few former suitors out there breathing a sigh of relief and possibly considering a potential return to the altar?

Lesson: don’t get caught up in the hype.

I mentioned $RDEA above and think that they have a fun story. $RDEA has its roots in the old IntraBiotics, which had failed developing iseganan, an anti-microbial for ventilator-assisted pneumonia. Just four and a half years after acquiring three R&D programs from $VRX in December 2006, they have grown from a $42M valuation (10.9M shares (12-31-06) x $3.90/share (12-21-06)) to a $636M (26.7M shares (4-29-11) x $23.81 (6-10-11)) company today. And to top it off, their value driver is not even one of the acquired assets!

In 2007 $RDEA began testing their lead asset, RDEA806, an NNRTI, for HIV patients. While they reported encouraging data, including positive viral load reduction in HIV-infected patients, someone must have noticed increased urate excretion from the healthy subjects and patients enrolled in their trials and decided to figure out why.

And thus, the discovery of RDEA594 (now lesinurad). It was a non-active metabolite of RDEA806, which had no effect on viral replication, but was able to inhibit URAT1, and increase urate excretion. While uricosuric drugs are not new (e.g., probenecid, benzbromarone), there are no currently approved drugs targeting URAT1.

Making the connection to gout and having the courage to shift gears and pursue a completely new corporate direction was key for $RDEA. An unexpected effect, which likely created greater value than their original parent program. This is why biotech is fun.

My initial take after reading through the some of the existing data sets (I have not downloaded/read/analyzed all of their poster/presentations) in different gout populations leads me to believe that lesinurad can be used across a greater population of patients, not simply treatment refractory, but including allopurinol intolerant, inadequate allopurinol responders and those restarting allopurinol therapy, by simply adding another pill. This could be a large market opportunity.

On the downside, lesinurad will likely need another 2 years to run and complete two P3 trials, and another year for regulatory approval, if successful. Patients and physicians will need to wait until 2015 for a launch if all goes well, giving $SVNT some time to establish a footprint and solidify its position for all treatment failures, and maybe bump up the price as well.

Gout has been full of surprises – and that’s not even including Takeda’s Uloric (febuxostat), which the UK’s NICE recommended only for people who are intolerant of allopurinol…OK, that wasn’t really a surprise.

No position in $RDEA or $SVNT at present.