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DEALTALK-UPDATE 1-Savient's gout drug nod may trigger bid war

(Adds Graphic on gout drugs)

* Abbott, Pfizer, Amgen seen as most likely suitors

* Takeover premium could be as high as 100 pct

* Aletrnative TNF-alpha inhibitors coming up to patent expiry (For more Reuters DEALTALKs; [DEALTALK/])

By Esha Dey

BANGALORE, Sept 21 (Reuters) - Savient Pharma SVNT.O investors may be looking at windfall gains as regulatory approval for the firm's gout drug could spark a bidding war valuing Savient at up to double its current stock price.

Krystexxa, an infused drug for treating gout in patients who do not improve with other therapies, is the first approved treatment in a difficult-to-treat patient group, and would fit well with the rheumatology franchise of a large pharmaceutical and biotech firm.

Besides, the greater market penetration afforded by the financial muscle of a large drugmaker may just turn the drug -- already expected to bring in about $500 million in peak U.S. sales -- into a blockbuster product.

Abbott Laboratories ABT.N, Pfizer PFE.N and Amgen AMGN.O are seen as the most likely acquirers given their existing rheumatology franchises, while Bristol-Myers Squibb BMY.N, Roche ROG.VX and Johnson & Johnson JNJ.N are also potential bidders.

“It’s not often an approved biological asset for a disease with unmet medical need is up for sale,” JPMorgan analyst Cory Kasimov said.

The drug has orphan status, guaranteeing it 7-year marketing exclusivity. Potential patent protection could also shield it from generic competition into 2026.

Gout is a a painful type of arthritis caused by a build-up of uric acid that leads to swollen joints. About 5 million Americans suffer from the disease.

DEAL LOGIC

The rheumatology portfolio of the bigger players is made up mostly of a class of arthritis drugs called TNF-alpha inhibitors that are expected to go off-patent as soon as 2012. Sales could drop 80 percent due to competition from cheap bio-similars.

TNF-alpha inhibitors work by blocking receptors to an inflammation-causing protein that is stimulated by the presence of high levels of uric acid in the blood, while Krystexxa, expected to be marketed at a significant premium to TNF-alpha drugs, works by lowering the levels of uric acid.

Japan's Takeda Pharmaceutical's 4502.T Uloric, approved early last year, is another next-generation gout drug, but is indicated for the standard form of the disease, while Krystexxa -- earlier known as Puricase -- is for severe gout sufferers.

Biotech acquisitions with rich premiums have started to ramp up this year as the patent cliff looms.

2010 acquisitions have included OSI Pharmaceuticals OSIP.O, bought by Japan's Astellas Pharma 4503.T for a 55 percent premium, and ZymoGenetics ZGEN.O being picked up by Bristol-Myers for an 84 percent premium.

Apart from the outright buys, AstraZeneca AZN.L also bought the rights to Rigel Pharmaceuticals' RIGL.O next-generation rheumatoid arthritis drug for up to $1.2 billion.

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For GRAPHIC on arthritis, gout drugs;

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For GRAPHIC on biotech deals in 2009/10;

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WHEN, AND FOR HOW MUCH?

A deal, expected to be announced within a couple of months, could bring in a premium ranging from a modest 25-30 percent up to a hefty 85-100 percent.

In May, Savient said it decided to put itself up for sale as the best way to realize the full global, commercial potential of Krystexxa.

A portfolio manager, who did not wish to be named but who manages Savient stock for one of the large institutional stakeholders in the company, expects to see an initial offer price in the high $20s a share, but added there is enough upside in the stock for a 100 percent premium.

The stock has jumped by a third to a 2-year high above $20 since winning the Food and Drug Administration nod last week. That’s still some way below its life high of $28.42 in July 2008. The company has a market capitalisation of $1.39 billion.

“Lots of these mergers and acquisitions are not based on the fundamentals of the company, they are based on bidding and things like that,” the portfolio manager said.

Only about 1 percent of Savient’s tradeable shares are held by insiders, according to Thomson Reuters data.

PRICING IT RIGHT

Savient’s entire value lies in Krystexxa -- generically known as pegloticase -- and the key to unlocking the drug’s sales potential lies in pricing the drug right, neither too low to discourage investors and potential acquirers, nor too high for adoption by patients and physicians.

“The last card (Savient) really has is the pricing, so it’s of no advantage to them to disclose what they think they can get from the drug,” said Roth Capital Partners analyst Andrew Vaino.

The company plans a price significantly above the average $20,000 per patient per year price of TNF-alpha inhibitors, and Street estimates range from $40,000 to as much as $100,000.

TNF-alpha inhibitors include Abbott's arthritis drug Humira, UCB's UCB.BR Cimzia, Amgen and Pfizer's Enbrel and J&J's Simponi and Remicade.

East Brunswick, New Jersey-based Savient sees a patient population of about 170,000, while the U.S. health regulator estimates there are about 90,000 patients with this indication. (Additional reporting by Anand Basu, Editing by Ian Geoghegan)

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