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Neutral on Santarus
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ShareWe recently reiterated our Neutral recommendation on specialty pharmaceutical company Santarus (SNTS - Snapshot Report).
Santarus suffered a major setback in late June 2010 with the entry of generic versions of its flagship product, Zegerid. This was a huge blow for Santarus as Zegerid accounted for 69% of total revenues in 2009.
However, Santarus has been working on shifting its focus from Zegerid and has been pursuing agreements and collaborations to expand its product portfolio. Santarus has also shifted its promotional focus to Glumetza for which the company has a co-promotion agreement with Depomed (DEPO - Analyst Report) for the US. We are positive on this agreement as it not only provides Santarus with an additional source of revenue; it also expands the company’s reach into the growing type II diabetes market by using the existing infrastructure.
Santarus recently added another product, Cycloset, to its diabetes portfolio by entering into a distribution and licensing agreement with S2 Therapeutics Inc. and VeroScience. We view this deal as a smart strategic move by Santarus - it should allow the company to leverage its 110-person sales force, which is already promoting Glumetza to endocrinologists and primary care physicians. According to the company, the combined peak sales potential of Glumetza and Cycloset could be in the range of $300–$400 million. Cycloset’s proven cardiovascular profile could give it an edge over other diabetes treatments.
In addition to Cycloset, Santarus brought on board two pipeline candidates including a phase III biologic Rhucin, which is being developed for the treatment of acute attacks of hereditary angioedema (HAE). The second candidate is an anti-VLA-1 antibody that has the potential to be developed for autoimmune and inflammatory diseases like rheumatoid arthritis, inflammatory bowel disease, psoriasis and organ transplantation.
Meanwhile, Santarus continues to make significant progress with budesonide MMX that was in-licensed from Cosmo. We were pleased to see positive top-line results on budesonide recently – the company is looking to file for approval of the candidate in the second half of 2011.
While we are pleased with the company’s efforts to tap other avenues for growth, we note that these will not be enough to make up for the loss of revenues from the genericization of Zegerid.
The company’s late-stage candidates, if successfully developed, are not likely to hit the market before 2012. Moreover, we are concerned about the company’s foray into new therapeutic areas in which it does not have much expertise. We note that the recently acquired anti-VLA-1 antibody is still in very early stages of development and has a long way to go before hitting the market. Any development setback would be a major disappointment for the company.
These concerns keep us at a Neutral rating. Going forward, we expect investor focus to remain on the company’s progress with its pipeline.
Read the full analyst report on SNTS
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