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SVNTQ > SEC Filings for SVNTQ > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for SAVIENT PHARMACEUTICALS INC

Form 10-Q for SAVIENT PHARMACEUTICALS INC


14-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q and, in particular, this management's discussion and analysis of financial condition and results of operations, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements contained in or incorporated by reference into this report, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future results of operations, future cash flows, future actions, future performance, projected costs and expenses, financing plans, product development, commercialization of KRYSTEXXA, possible strategic alliances, projections for current alliances, co-promotes and partnerships, competitive position, prospects, plans and objectives of management, are forward-looking statements. We often use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "may," "predict," "will," "would," "could," "should," "target" and similar expressions, to identify forward-looking statements. These forward-looking statements include, among others, statements relating to the satisfaction of conditions to the closing of the proposed asset sale discussed below under the heading "Chapter 11 Cases," the potential of the proposed asset sale and the expectation that the Chapter 11 Cases will enable us to sell our assets in an orderly manner and maximize value for our stakeholders, the necessity of Bankruptcy Court approvals to conduct and complete the proposed asset sale and other statements regarding the success of our marketing efforts and our ability to commercialize KRYSTEXXA, market demand and our ability to gain market acceptance for KRYSTEXXA among physicians, patients, health care payors and others in the medical community, our plans in the European Union and the rest of the world, the potential for our entering into partnering or collaboration arrangements to commercially launch KRYSTEXXA in the European Union under the marketing authorization received from the European Commission and in the rest of the world, the ability of any partner we may have to gain market acceptance for KRYSTEXXA among physicians, patients, health care payors and others in the medical community within their territory, market acceptance of reimbursement risks with third-party payors generally and in particular following price increase actions, the risk that the market for KRYSTEXXA in the United States, European Union and other regions is smaller than we have anticipated, our plans for the expansion of clinical utility for KRYSTEXXA, our ability to fund our operations, our reliance on third parties to market, distribute and sell KRYSTEXXA outside the United States, our reliance on third parties to manufacture KRYSTEXXA and our ability to meet the stringent regulatory requirements governing the biopharmaceutical industry.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in our forward-looking statements as a result of risks and uncertainties, including, among others, the potential adverse impact of the Chapter 11 Cases on our liquidity or results of operations, changes in our ability to meet financial obligations during the Chapter 11 process or to maintain contracts that are critical to our operations, the outcome or timing of the Chapter 11 process and the proposed asset sale (including the occurrence or likelihood of an auction), the effect of the Chapter 11 Cases or proposed asset sale on our relationships with third parties, regulatory authorities and employees, proceedings that may be brought by third parties in connection with the Chapter 11 process or the proposed asset sale, Bankruptcy Court approval or other conditions to the proposed asset sale and the timing or amount of any distributions to our stakeholders. We have included important factors in various cautionary statements in this report, including in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this report completely and with the understanding that our actual future results may be materially different from what we expect. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Executive Summary

We are a specialty biopharmaceutical company presently focused on commercializing KRYSTEXXA (pegloticase) in the United States. KRYSTEXXA is indicated in the United States for the treatment of chronic gout in adult patients refractory to conventional therapy, a condition that we refer to as refractory chronic gout, or RCG. RCG occurs in patients who have failed to normalize serum uric acid and whose signs and symptoms are inadequately controlled with xanthine oxidase inhibitors at the maximum medically appropriate dose or for whom these drugs are contraindicated. KRYSTEXXA is not recommended for the treatment of asymptomatic hyperuricemia, an elevation of blood concentration of uric acid not associated with gout. The active pharmaceutical ingredient, or API, in KRYSTEXXA is a PEGylated uric acid specific enzyme that converts uric acid to allantoin, which is readily eliminated primarily through the kidney. We believe that treatment with KRYSTEXXA provides clinical benefits by dramatically decreasing uric acid in the blood and tissue deposits of urate.

We also sell and distribute, but do not actively market, branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss. Additionally, we have a co-promotion agreement with Sobi for the co-promotion of Kineret , a treatment for rheumatoid arthritis, in the U.S.

We currently operate within one "Specialty Pharmaceutical" segment, which includes the sales and research and development of KRYSTEXXA, sales of Oxandrin and oxandrolone and co-promotion activities for Kineret.

Chapter 11 Cases

We have faced significant challenges to our business during the last several years, which has impeded our efforts to commercialize KRYSTEXXA and has contributed to a decline in our liquidity position. Commercializing KRYSTEXXA has been difficult and has required significant expenditures. Since the approval by the U.S. Food and Drug Administration, or FDA, of KRYSTEXXA in September 2010, we have devoted significant resources to building a sales force and infrastructure to market KRYSTEXXA, fulfill post-marketing commitments and conduct medical and clinical programs. Despite succeeding in achieving steady increases in KRYSTEXXA sales since its approval by the FDA and our best efforts, we have continued to operate at significant losses. Additionally, we have incurred a substantial amount of indebtedness, the repayment or refinancing of which at or prior to its scheduled maturity was uncertain. After conducting a rigorous assessment of a wide variety of strategic alternatives, our Board of Directors determined that a sale of our assets in bankruptcy represented the best way to maximize value for our stakeholders.

On October 14, 2013, we and our wholly owned subsidiary SPHI filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. The Chapter 11 Cases are being jointly administered for procedural purposes under the caption "In re Savient Pharmaceuticals, Inc., et. al." Case No. 13-12680. On October 14, 2013, the Board of Directors of SPIL and the Board of Directors of SIL, both wholly owned subsidiaries of ours, each passed a resolution recommending to us, as the sole shareholder of each, that it is advisable for both SPIL and SIL to be liquidated under the laws of Ireland, contingent upon Bankruptcy Court approval authorizing us to take such actions that may be necessary to effectuate the liquidation. On November 4, 2013, the Bankruptcy Court approved a motion authorizing us to take such actions necessary to liquidate SPIL and SIL under Irish law, however such liquidations have not yet commenced.

We and SPHI intend to continue operating our businesses in the ordinary course, taking into account our status as debtors-in-possession, as we seek to complete the sale of our assets. In general, as debtors-in-possession, we and SPHI are authorized under the applicable provisions of the Bankruptcy Code to continue as an ongoing business, but may not engage in transactions outside of the ordinary course of business without the prior approval of the Bankruptcy Court. At hearings held on October 16, 2013, the Bankruptcy Court granted our and SPHI's "first day" motions for various relief designed to stabilize our operations and business relationships with employees, customers and others and entered orders granting authority to us to, among other things, pay certain pre-petition employee wages, salaries, benefits and other employee obligations, maintain certain customer programs, continue ordinary banking practices and use the cash collateral of the holders of our 2019 Notes to fund our operations. In addition, the Bankruptcy Court entered an order prohibiting utility companies from altering or discontinuing service on account of pre-petition invoices. The interim cash collateral order entered by the Bankruptcy Court on October 16, 2013 provided, among other things, that we and SPHI may use cash collateral of the holders of our 2019 Notes only for working capital, general corporate purposes and administrative costs incurred in the ordinary course of business, including in connection with the proposed asset sale process, and for adequate protection payments to the holders of our 2019 Notes since the cash collateral is subject to the security interests of such holders. On October 18, 2013, we paid $8.0 million to the holders of our 2019 Notes. We and SPHI intend to seek final relief from the Bankruptcy Court with respect to matters addressed by relevant "first day" motions at a hearing scheduled for November 20, 2013.


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Further, on November 4, 2013, the Bankruptcy Court approved a motion authorizing us to take such actions necessary to liquidate SPIL under Irish law. As a result, we do not expect commercial availability of KRYSTEXXA in the EU in the near term, and during the Chapter 11 process, we will be focusing our efforts on the commercialization of KRYSTEXXA in the United States.

The commencement of the Chapter 11 Cases constituted an event of default under each of the 2018 Indenture and the 2019 Indenture. Under the terms of the 2018 Convertible Notes, upon commencement of the Chapter 11 Cases, the outstanding principal amount of, and accrued and unpaid interest on, the 2018 Convertible Notes became immediately due and payable. Under the terms of the 2019 Notes, upon commencement of the Chapter 11 Cases, the accreted principal balance of, and the accrued and unpaid interest on, the 2019 Notes became immediately due and payable. As of October 14, 2013, the 2018 Notes had an outstanding principal amount of $122.4 million and outstanding accrued and unpaid interest and the 2019 Notes had a contractual accreted principal balance of $145.4 million and outstanding accrued and unpaid interest. Under the Bankruptcy Code, the acceleration provisions applicable to the debt obligations described above are generally unenforceable, and any remedies that may exist related to the events of default described above are stayed, under section 362 of the Bankruptcy Code.

On October 14, 2013, we and SPHI entered into an acquisition agreement with US WorldMeds and its subsidiary Sloan, pursuant to which Sloan agreed to acquire substantially all of our and SPHI's assets and certain liabilities, for an aggregate purchase price of approximately $55.0 million, subject to certain adjustments.

The Acquisition Agreement is subject to a number of closing conditions, including the approval by the Bankruptcy Court in the Chapter 11 Cases commenced by us and SPHI; the absence of a governmental order or other legal prohibition related to the transaction; the accuracy of representations and warranties of the parties, subject to certain qualifications; and material compliance with the obligations set forth in the Acquisition Agreement.

The asset sale pursuant to the Acquisition Agreement is being conducted under the provisions of Section 363 of the Bankruptcy Code and is subject to bidding procedures approved by the Bankruptcy Court and receipt of higher or otherwise better bid(s) at auction. On November 4, 2013, the Bankruptcy Court entered an order which, among other things, approved the proposed bidding procedures for the sale of our and SPHI's assets and the bid protections, including a break-up fee of $1.65 million and an expense reimbursement amount not to exceed $0.75 million in the event that the sale to Sloan is not consummated and subject to other requirements. The deadline for receipt of bids is December 6, 2013, and the auction and sale hearing are scheduled to occur on December 10 and 13, 2013, respectively.

As a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty. Further, a plan of reorganization or liquidation could or will materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the classifications or carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a Chapter 11 plan.

Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and pre-petition liabilities must be satisfied in full before shareholders are entitled to receive any distribution or retain any property under a plan of reorganization or liquidation. In addition, under the Bankruptcy Code, the holders of the 2019 Notes as secured creditors are entitled to be paid in full before other creditors. The timing of the ultimate recovery to creditors and/or shareholders, if any, is uncertain. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 Cases to each of these constituencies or what types or amounts of distributions, if any, they would receive. The aggregate purchase price of approximately $55.0 million offered by the stalking horse buyers in the proposed asset sale is significantly less than the accreted principal amount of our 2019 Notes.

A plan of reorganization or liquidation could result in holders of our capital stock receiving no distribution on account of their interests and cancellation of their existing stock. If certain requirements of the Bankruptcy Code are met, a Chapter 11 plan can be confirmed notwithstanding its rejection by our equity security holders and notwithstanding the fact that such equity security holders do not receive or retain any property on account of their equity interests under the plan.

As a result of the Chapter 11 Cases, we and SPHI are periodically required to file various documents with, and provide certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, monthly operating reports and other financial information. Such materials will be prepared according to requirements of federal bankruptcy law. While they would accurately provide then-current information required under federal bankruptcy law, such materials will contain information that may be unconsolidated and will generally be unaudited and prepared in a format different from that used in our consolidated financial statements filed under the securities laws. Accordingly, we believe that the substance and format of such materials do not allow meaningful comparison with our publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities or for comparison with other financial information filed with the SEC.

Most of our filings with the Bankruptcy Court are available to the public at the offices of the Clerk of the Bankruptcy Court or the Bankruptcy Court's web site (http://www.deb.uscourts.gov) or may be obtained through private document retrieval services. We undertake no obligation to make any further public announcement or issue any update with respect to the documents filed with the Bankruptcy Court or any matters referred to therein.

Additional information about this process and proposed asset sale, as well as court filings and other documents related to the Chapter 11 proceedings, is available through our claims agent, the Garden City Group, at www.gcginc.com/cases/svnt or 866-297-1238. Information contained on, or that can be accessed through, such web site or the Bankruptcy Court's web site is not part of this report.


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Business Overview

KRYSTEXXA was approved for marketing by the FDA on September 14, 2010 and became commercially available in the United States by prescription on December 1, 2010, when we commenced sales and shipments to our network of specialty and wholesale distributors. On January 8, 2013, SPIL was granted a marketing authorization from the European Commission for KRYSTEXXA to be marketed in the European Union, or EU. At this time, we cannot estimate the timeline for commercial availability of KRYSTEXXA in the EU and the other regions around the world as we require partners or collaborators in order to commercialize the product in those regions. To date, our efforts to commercialize KRYSTEXXA in the EU have not resulted in a partnership or collaboration opportunity that is commercially viable. Additionally, on May 2, 2013, we received a Final Appraisal Determination from the National Institute for Health and Care Excellence, or NICE, of England, in which NICE did not recommend KRYSTEXXA for use by the National Health Service, or NHS, in England and Wales. NICE agrees that KRYSTEXXA is an effective agent for the treatment of chronic tophaceous gout when used under the approved guidelines for use, however, NICE found that KRYSTEXXA would not be a cost-effective use of NHS resources. Further, on November 4, 2013, the Bankruptcy Court approved a motion authorizing us to take such actions necessary to liquidate SPIL under Irish law. As a result, we do not expect commercial availability of KRYSTEXXA in the EU in the near term, and during the Chapter 11 process, we will be focusing our efforts on the commercialization of KRYSTEXXA in the United States.

In the first half of 2011, we completed what we refer to as the KRYSTEXXA Market Study in collaboration with a leading independent life science consulting firm. This comprehensive market research study, completed using both secondary data sources and primary market research, indicated that there are approximately 120,000 RCG patients in the United States, or approximately 4.2% of the overall annual treated gout population in the United States. However, through further work we determined that not all of these patients are engaged in the healthcare system and if engaged in the healthcare system, are not seeking treatment with Rheumatologists which is the physician specialty on whom we concentrate most of our commercial efforts. Additionally, we have estimated that only between 20,000 and 40,000 of the most severe RCG patients in the United States are being treated by the Rheumatologists that we currently target, and that, according to a follow-on study completed in June 2013, only approximately 9,000 of these patients are seen by Rheumatologists most likely to prescribe KRYSTEXXA.

Since the beginning of 2012, we increased the selling price of KRYSTEXXA by approximately 134% from the original list price of $2,300 per 8 mg vial to, most recently, $5,390 per 8 mg vial, effective May 17, 2013.

On July 9, 2012, we initiated a reorganization plan which includes organizational changes designed to improve our operational efficiencies while ensuring continued focus on the commercialization of KRYSTEXXA and the advancement of our clinical development programs. As part of the initiative, we decreased our work-force by approximately 35%, including vacancies, effective September 10, 2012. On May 13, 2013, we committed to a plan of termination pursuant to which 27 employees, or approximately 21% of the current workforce, were terminated. We incurred a charge of approximately $0.8 million against operations in the second quarter of 2013 for the cost of these terminations. On May 21, 2013, we initiated an additional reorganization plan that resulted from our reassessment of our domestic and international operation. As part of this plan, we initiated significant non-labor related cost savings initiatives across commercial, research and development and general and administrative functional areas. On September 15, 2013, we initiated another reorganization plan which focused primarily on non-labor cost savings but also included a termination plan for six additional employees. Additionally, during the second and third quarters of 2013, we also entered into severance arrangements with other former employees including our former President and CEO based on his resignation on June 18, 2013, and recorded additional severance charges of $2.1 million related to these severance arrangements.

Our sales force targets rheumatologists and nephrologists with access to infusion centers and healthcare institutions, each of which treat adult patients suffering from RCG, as well as podiatrists who may also refer patients with RCG. To date, our U.S. sales force has reached the majority of key rheumatologists and nephrologists located in private practices, infusion centers, hospitals, academic institutions and U.S. Department of Veterans Affairs, or the VA, medical centers. However, we believe that sales of KRYSTEXXA have been hampered by the lack of information that was available to prescribers at the time of the commercial launch of KRYSTEXXA and concerns over Medicare Part B reimbursement. In an effort to address the lack of information available to prescribers, in August 2011, we published data from our two pivotal KRYSTEXXA Phase 3 clinical trials in patients with RCG in the Journal of the American Medical Association, or JAMA. The data published in JAMA demonstrated that treatment with KRYSTEXXA resulted in significant and sustained reductions in uric acid levels along with clinical improvements in a substantial percentage of RCG patients for six months, a timeframe for demonstrating clinical improvement that is unique in randomized controlled studies of urate-lowering therapies. The data published also included a summary of adverse events that occurred in at least 5% of the patients in the trial. In addition, a manuscript showing the improvement in patient-reported outcomes following treatment with KRYSTEXXA was published in the June 27, 2012 Journal of Rheumatology. Unlike the objective end points of a clinical trial, such as the lowering of serum uric acid, patient reported outcomes measure subjective aspects, such as reduction in pain, or improvement in the patient's quality of life.


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Data from our open label long term extension trial was published in Annals of Rheumatic Disease on-line on November 10, 2012. This article provides key clinical data on patients who received KRYSTEXXA for up to an additional 30 months and is critical for clinicians to better understand the clinical benefits of long-term KRYSTEXXA use for their patients and how to manage possible side effects. Additionally, a review article on RCG and the use of pegloticase was published in the April 2012 issue of the International Journal of Clinical Rheumatology. Furthermore, an appraisal of the role of pegloticase in the management of gout was published in the 2012 issue of Open Access Rheumatology:
Research and Reviews. Finally, a review article on the evaluation and treatment of gout as a chronic disease was published on-line in the journal Advances in Therapy in October 2012. This article describes the population with RCG and the role pegloticase plays in the treatment of this condition.

In June 2012, we presented data at an oral session conducted by the European League Against Rheumatism, or EULAR, congress that demonstrated that patients with RCG who also suffer from chronic kidney disease, or CKD, stages one through four, responded to treatment with KRYSTEXXA. Six additional abstracts, including a study measuring the impact of gout pain on quality of life in Western Europe, were accepted for presentation or publication at EULAR.

In November 2012, we presented eight posters related to KRYSTEXXA at the American College of Rheumatology, or ACR highlighting the long term efficacy and safety, as well as the Post-Marketing safety profile:

At the June 2013 EULAR meeting, two abstracts were presented highlighting the post-marketing safety data for KRYSTEXXA. At the October 2013 ACR meeting we presented 5 posters and 1 oral presentation, highlighting the use of KRYSTEXXA in dialysis patients and the lack of consistency in the application of treatment targets in the treatment of gout. At the November meeting of the American Society of Nephrology we presented a poster on the Pharmacokinetics and Pharmacodynamics of pegloticase in patients undergoing hemodialysis.

On January 1, 2012, KRYSTEXXA received a permanent J Code, which facilitates reimbursement to providers who treat patients suffering with RCG and who rely on Medicare and Medicaid. We were also awarded a contract from the VA, which covered KRYSTEXXA reimbursement for VA member patients as of April 1, 2011 at an approximate 24% discount to our original list selling price of $2,300 per 8 mg vial. On May 17, 2013, we increased the list selling price of KRYSTEXXA to $5,390 per 8 mg vial and VA member patients now receive an approximate 71% discount to our list price. The VA has also recently issued a KRYSTEXXA monograph and criteria for use. In addition, KRYSTEXXA currently enjoys broad coverage for RCG patients through managed care and private payor organizations. Also, ACR published their treatment guidelines for gout and KRYSTEXXA was included in these guidelines. In six of nine case scenarios defined by ACR, KRYSTEXXA is considered an appropriate therapeutic option for treatment of refractory disease.

In June 2011, we implemented the KRYSTEXXA Patient Initiation Program, or KPIP, which provided RCG patients with two free doses of KRYSTEXXA. We believe that this initiative allows patients to begin therapy and experience the potential benefits of KRYSTEXXA with no or minimal out-of-pocket expense. In July 2013, the KPIP was terminated.

On January 8, 2013, SPIL was granted a marketing authorization from the European Commission for KRYSTEXXA in the EU for the treatment of severe debilitating chronic tophaceous gout in adult patients who may also have erosive joint involvement and who have failed to normalize serum uric acid with xanthine oxidase inhibitors at the maximum medically appropriate dose or for whom these medicines are contraindicated. As we have no infrastructure in the EU that is capable of handling the commercial launch and distribution of KRYSTEXXA, we had been pursuing an examination of various collaboration and partnership opportunities for the commercial launch and distribution of KRYSTEXXA in the EU. Identifying commercially viable EU collaboration and partnering opportunities has proved to be challenging, however. Potential collaborators and partners have had difficulty assessing the potential market size in the EU, given the slower . . .

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