I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Savient Pharmaceuticals (Nasdaq: SVNT). Is this emerging biotech company the real thing? Let's get right to the numbers.

Foolish facts


Savient Pharmaceuticals

Motley Fool CAPS stars (out of 5) ***
Total ratings 456
Percent bulls 91.9%
Percent bears 8.1%
Bullish pitches 60 out of 65
Highest-rated peers Trubion Pharmaceuticals, Codexis, Neostem

Data current as of Nov. 16.

Big money investors are as undecided about Savient as are Fools. They've good reason to be skittish. Shares of Savient are down almost 50% over the past month. The S&P 500 is up slightly over the same period.

Part of the problem, apparently, is that investors see Savient as a special situation. One of the big pharma companies was supposed to make a bid for the company at a nice premium. No buyer has been found, nor is there any indication there will be one.

What this means is that, barring an unexpected bid, Savient could be on its own to market and distribute its gout treatment, Krystexxa. Not exactly the outcome you hope for when you're managing a biotech that hasn't produced a dime of free cash flow on an annual basis since 2005. Yet at least one Fool remains hopeful.

"Slammed almost 50% because it couldn't find a buyer at it's already run-up speculated price. Remember it still has a fresh FDA approval of Krystexxa for arthritis, so the risk/reward at this point is very appealing. Potential for a quick pop from another (albeit lower) buyout price, or it can ride the Krystexxa sales for a while," All-Star investor darthballs wrote in pitching the stock in CAPS last month.

The elements of growth


Past 12 Months



Normalized net income growth Not measurable Not measurable Not measurable
Revenue growth 23.1% (6.9%) (77.3%)
Gross margin 65.2% 45.7% 63.7%
Receivables growth 1% (57.2%) (44.8%)
Shares outstanding 67.3 million 66.9 million 54.6 million

Source: Capital IQ, a division of Standard & Poor's.

Indeed, there's good news in this table for speculative value investors such as darthballs. Let's review:

  1. Management is also getting more efficient. Receivables are up just 1% versus a 23% boost in sales. The result? Savient is reporting lower operating losses and burning through less cash.
  2. In fact, it's careful cash management that's likely responsible for Savient not needing to issue millions more in shares outstanding. But this may not continue. With no cash-rich parent to share marketing and distribution costs, Savient could be forced to either issue new shares or part with some of the $78 million in cash on its balance sheet.

Competitor and peer checkup


Normalized Net Income Growth (3 years)

Lannett (NYSE: LCI) Not measurable
Novartis (NYSE: NVS) 16.1%
Par Pharmaceutical (NYSE: PRX) 29%
Savient Pharmaceuticals Not measurable

Source: Capital IQ. Data current as of Nov. 16.

We can't draw any conclusions about Savient from this table. All it tells us is that Par Pharmaceuticals is the best growth story here. If only analysts were more optimistic about Par; they're calling for its earnings to decline 1% annually for the foreseeable future.

Grade: Unsustainable
Wall Street has yet to pin a long-term earnings target on Savient's backside. That's not necessarily troublesome, but it's also one less reason to believe in this growth story. No suitors, no soothsayers, and no free cash flow. That's a terrible triumvirate, one I'd rather do without.

Now it's your turn to weigh in. Do you like Savient Pharmaceuticals at these levels? Let us know what you think using the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email or replying to him on Twitter.

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

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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 here 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 thinks Monty Python is sustainably funny.