Shares of Santarus, Inc. (SNTS) have been on the upswing since the latter half of May 2012, driven by an earnings surprise of 150% in the first quarter of 2012. This specialty biopharmaceutical company hit its 52-week high of $7.75 on July 10. With a more than two-fold year-to-date growth, this Zacks #1 Rank (Strong Buy) looks like a solid momentum pick.
Impressive First Quarter Results
On May 8, Santarus reported first quarter earnings of 1 cent per share, which compared favorably with the Zacks Consensus Estimate for a loss of 2 cents and the year-ago loss of 1 cent.
Revenues jumped 101.1% to $45.9 million, edging past the Zacks Consensus Estimate of $45 million. Net product sales were boosted by revenues of the type II diabetes drug Glumetza, which were absent a year-ago. Santarus commenced distributing and recording product sales for the drug from September 2011, following a new commercialization agreement inked with DepoMed Inc. (DEPO).
The deal, inked in August 2011, gave Santarus broader commercial, manufacturing and regulatory responsibilities for the drug. The deal replaced the promotion agreement signed by the companies in 2008. Moreover, Cycloset (type II diabetes) and Fenoglide (anti-cholesterol) did well in the first quarter of 2012.
Santarus reaffirmed its guidance for 2012 of revenues at least $200 million, up 68% over 2011 levels. The Zacks Consensus Estimate is calling for revenues at $201 million.
Premium Valuation Justified
Santarus currently trades at a forward P/E of 46.9x, reflecting a huge premium of 200.6% to the peer group average of 15.6x. Also, on a price-to-book basis, shares are trading at 8.1x, a 361.1% premium to the peer group average of 1.8x. Given the companys strong product portfolio and interesting pipeline, the premium valuation is justified and well supported by its long-term estimated earnings growth rate of 25.0%, compared to the peer group average of 18.0%.
Impending FDA Decision
A key action date is coming up at Santarus in October this year, when the US Food and Drug Administration (FDA) is expected to decide on the companys ulcerative colitis candidate, Uceris. The target date of October 16 was assigned by the FDA in February this year. Positive news from the FDA would further boost the stock.
Furthermore, the settlement of a patent related dispute for Glumetza with Lupin Pharmaceuticals, Inc. in February this year has removed a major overhang on the stock.
The string of good news has contributed to the strong showing by the stock since the beginning of the year. The stock has been consistently trading above its 200-day moving average. It has also remained above the 50-day moving average since May 24, 2012.
Volume is fairly strong, averaging roughly 513K daily. Santarus has constantly outperformed the S&P 500 since the beginning of this year. The year-to-date return for the stock is approximately 127.6%, compared with the S&P 500s return of 6.0%.
Headquartered in San Diego, California, Santarus is a specialty biopharmaceutical company with a market cap of $470 million. The company focuses on acquiring, developing and commercializing proprietary drugs to meet the needs of patients treated by physician specialists. The marketed drugs of Santarus are Glumetza (type II diabetes), Cycloset (type II diabetes), Zegerid (to fight ulcers) and Fenoglide (anti cholesterol). Santarus does not promote Zegerid prescription products in the US. Moreover, the company has an interesting pipeline, the most advanced candidate being Uceris, currently under FDA review.