The Big Money Says to Hold Savient Pharmaceuticals

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Savient Pharmaceuticals (Nasdaq: SVNT  ) . Are institutions bullish or bearish when it comes to this emerging biotech company?

Foolish facts

Metric

Savient Pharmaceuticals

CAPS stars (5 max) ***
Total ratings 451
Percent bulls 91.6%
Percent bears 8.4%
Bullish pitches 58 out of 63
Highest rated peers Trubion Pharmaceuticals, Codexis, Neostem

Data current as of Nov. 8.

Savient's three-star rating is largely due to our top investors being slightly less bullish on the stock than the rest of their peers. But no two All-Star Fools are equal. One of our very best has high hopes for this budding biotech, which makes the gout treatment Krystexxa.

"The drug received 'orphan status' meaning that it has a 7 year exclusive before a generic can be released. Market value of Krystexxa appears to have a wide range, but $900 Million in five years might be possible," wrote Foolish investor TSIF last month.

Two things make this pitch interesting. First, TSIF ranks in the top 1% of all Fools rating stocks in CAPS. Second, Savient was worth $839 million in market cap and had $78 million in the bank as of this writing.

The trouble with using valuation to justify a bullish stance on Savient is no peers are willing to confirm its worth. Earlier conjecture that Amgen (Nasdaq: AMGN  ) or Pfizer (NYSE: PFE  ) would make a bid for the company proved wrong when management said last month that it had failed in efforts to find a buyer. Opportunists aren't interested in this opportunity. Not yet, anyway.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

BlackRock

704,097

124,500

5,298,564

5,414,084

Palo Alto Investors

7,142,719

3,658,682

3,463,179

4,345,303

Sectoral Asset Management

742,207

5,530,449

3,743,048

3,665,348

The Vanguard Group

1,620,858

2,117,299

2,940,502

3,234,790

Fred Alger Management

1,841,109

279,752

2,822,241

2,936,089

TOP 25 TOTAL

20,971,356

23,229,918

49,724,375

52,696,406

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Regardless, the institutions tend to agree with TSIF. The top 25 have been buying in aggregate since December, trimming their stakes only slightly this fall. (They've sold roughly 240,000 shares since June.) Most importantly, the five big buyers have held even as FDA uncertainty plagued Krystexxa and the overall business.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Lannett Co. (AMEX: LCI  ) 7.86% 58.40%
Novartis AG (NYSE: NVS  ) 41.93% 0.23%
Par Pharmaceutical Companies (NYSE: PRX  ) 89.51% 2.06%
Savient Pharmaceuticals 65.06% 0.88%

Source: Capital IQ, a division of Standard  & Poor's. Data current as of Nov. 8.

Savient looks good but not great in this table. Institutions still have room to buy, sure, but insiders own less than 1% of the shares outstanding. They're not risking capital in the same way their peers at Par Pharmaceuticals or common shareholders are.

Management has less to lose, and as a result may be less motivated to produce a winning outcome for Savient investors. So while I find TSIF's valuation argument reasonable, I can't justify betting on the stock at current prices.

Now it's your turn to weigh in. Do you think the institutions are wrong about Savient Pharmaceuticals? Let us know what you think using the comments box below. You can also recommend other stocks for Tim to evaluate by sending him an email, or replying to him on Twitter.

Interested in more info on Savient Pharmaceuticals? Add it to your watchlist here by clicking here.

BlackRock and Pfizer are Motley Fool Inside Value picks. Novartis AG is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


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