Santarus Inc. Q1 2009 Earnings Call Transcript

Santarus Inc. (SNTS)

Q1 2009 Earnings Call

May 6, 2009 5:00 pm ET

Executives

Martha Hough - VP of Finance and IR

Gerry Proehl - President and CEO

Debbie Crawford - SVP, CFO, Treasurer and Secretary

Bill Denby - SVP, Commercial Operations

David Ballard - SVP, Clinical Research and Medical Affairs.

Analysts

Aaron Mishel - Thomas Weisel Partners

David Amsellem - Piper Jaffray

Michael Higgins - Foresight Research

Presentation

Operator

Welcome to the Santarus first quarter conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded on May 6, 2009. I would now like to turn the conference over to Ms. Hough. Please go ahead ma'am.

Martha Hough

Thank you, Maggie. Good afternoon and welcome to today's call. This is Martha Hough, Vice President of Finance and Investor Relations. Joining me on the call today are Gerry Proehl, President and Chief Executive Officer; Debbie Crawford, Senior Vice President, Chief Financial Officer, Treasurer and Secretary and Bill Denby, Senior Vice President, Commercial Operations. Dr. David Ballard, our Senior Vice President, Clinical Research and Medical Affairs will also join us for today's question-and-answer session.

Earlier today, Santarus issued a press release announcing our first quarter 2009 financial results, which is available on our website. This call is also being broadcast live over the internet at www.santarus.com, and a replay of the call will be available for the next two weeks under the Investor Relations section of our website.

For today's call, please keep in mind that risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements made during today's call. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements, which are qualified in their entirety by the cautionary statements contained in the press release and the company's Securities and Exchange Commission filings.

The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 6, 2009. Santarus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

With those comments, I would now like to turn the call over to Gerry Proehl.

Gerry Proehl

Thank you, Martha, and my thanks to everyone for joining us this afternoon. We are pleased to report another quarter of strong financial performance, with net income of $1.2 million for the quarter compared with a loss of $7.6 million in the first quarter of 2008.

Total revenues were $34.8 million, up approximately 42% over the prior year period. Product related revenues were $32.1 million, including a $4.5 million contribution from GLUMETZA, which we began promoting in the fourth quarter of 2008.

Both, total and new prescriptions for ZEGERID were up approximately 16% compared with the first quarter of 2008, reflecting solid growth. Debby will provide additional detail about our financial performance in a few minutes.

Our goal at Santarus is to become a premier specialty biopharmaceutical company. Our plan is to continue to grow ZEGERID and GLUMETZA revenues to move the company toward sustained profitability, while funding the clinical development of our two late-stage, lower GI product candidates, budesonide MMX and rifamycin SV MMX.

We also intend to remain open to attractive opportunities to expand our portfolio with products that are good strategic fit and allow us to further leverage our commercial organization. Excluding fund raising for those types of product opportunities, we believe our current cash resources are more than sufficient to fund our current operations.

Last December, we increased our future growth potential by adding budesonide MMX and rifamycin SV MMX to our pipeline. These product candidates are very attractive for a number of reasons. We believe they address unmet needs and have significant peak sales potential, which we estimate at $150 million to $250 million for budesonide MMX and $50 million to $150 million for rifamycin SV MMX, depending on the number of indications we pursue.

Once approved, these product candidates will be promoted primarily to gastroenterologists, a relatively small and focused specialty group. Both products have active drug substances that have the demonstrated efficacy and safety in other formulations and the cost to develop these product candidates will be shared, so we pay approximately 50% of the Phase III clinical trial expenses for each drug.

Finally, the addition of these two lower GI product candidates works to fulfill our goal of further diversify our future revenues while further leveraging our current commercial organization. budesonide MMX and rifamycin SV MMX clearly fit our strategic focus. Both these late stage product candidate are formulated using patented Multi-Matrix or MMX Delivery Technology, which results in local application as the active drug substance throughout the entire colon.

The MMX Technology is designed limits systemic absorption due to its targeted delivery to the colon portents to reducing side effects. Patent coverage for the MMX technology runs to mid 2020.

budesonide MMX is currently in Phase III clinical trials for induction of remission in patients with mild to moderate active ulcerative colitis measured at eight. We are now full engaged in overseeing US Phase III registration trials, which began in the third quarter of 2008. Our focus is on implementing programs to increase enrolment to fulfill our goal, to have patient recruitment completed in the first half of 2010.

The US and European trial are each expected to evaluate approximately 450 patients for a total of approximately 900 patients in the Phase III programs. We expect to have top line data to report from the US clinical program in the second half of 2010, given that the European clinical trial began before the US program, we expect the top line clinical data from the European Phase III clinical program will be available before the US data potentially in late 2009 or early 2010.

As we have previously discussed, the FDA has also requested a 12 months extended use trial in up to approximately 150 patients. We believe that this 12 months extension trial will be completed in the first half of 2011 and we do planned to submit a new drug application for budesonide MMX to the FDA in the second half of 2011.

Turning the rifamycin SV MMX, we currently plan we currently to file an investigational new drug application with the FDA for rifamycin SV MMX in the second half of 2009. There are number of development activity that Cosmo is currently undertaking with rifamycin SV MMX in 2009. They are conducting a multi-dose PK clinical study and a single-dose food effect clinical study in healthy volunteers, as well as pre-clinical genotoxicity in segment II reproductive toxicity studies.

We expect to start the Phase III US registration trial with rifamycin SV MMX in traveler’s diarrhea in the first half of 2010 and complete the trial in the first half of 2011 with an NDA submission following the second half of 2011. We also expect to be able to release top line data in the second half of 2011. We anticipate that the timing of the initiation of the Phase III clinical trial for European submission maybe earlier than in the US.

rifamycin has been used in Europe for over 20 years in IV and injectible forms and so we expect they will not be considered a new molecular entity in Europe and therefore will not require the pre-clinical and non-clinical studies being undertaken for the US regulatory submission.

There are several other potential indications associated with diseases that we may pursue, where we believe there is an infectious component in the colon. These include diverticular disease, C. difficile associated with diarrhea; Inflammatory Bowel Disease and hepatic encephalopathy.

We are currently investigating the potential for rifamycin SV MMX in these diseases through a research of clinical literature and discussion with medical experts in these disease states.

Our investment in these two product candidates will result in increased research and development expenses over the next few years. We plan to manage these expenses and do not currently anticipate any significant increase in our R&D budget in 2010 compared with the guidance we had given for 2009, which Debby will discuss in her financial overview.

Both budesonide MMX and rifamycin SV MMX address serious lower GI conditions treated by gastroenterologists. We believe we will be well positioned to own these drugs as our sales force as established relationships with gastroenterologists. We've been calling on the GI specialty group since the launch of ZEGERID in late 2004.

Turning to significant recent development, last month we announced that the FDA has accepted for filing our New Drug Application for an immediate-release tablet formulation of ZEGERID. Pursuant to PDUFA guidelines, we expect the FDA will complete its review or otherwise respond to the NDA by December 4, 2009.

Schering-Plough Healthcare Products continues to work closely with the FDA to provide additional information outlined in the complete response letter received in January for its New Drug Application, seeking approval for an over-the-counter formulation of ZEGERID 20 milligram. We believe that OTC ZEGERID product attributes will be well suited for the OTC consumer.

The discovery phase of our litigation with Par Pharmaceuticals has been completed, and the bench trial is currently scheduled for July 2009 in the Delaware District Court. While its difficult to predict the exact timing of the court’s decision which could come earlier or later than we expect, our understanding is that the average time to a final decision in recent Delaware and the cases is right around 30 months.

This is consistent with the 30-month stay period imposed by the FDA in these types of cases. For example, the trial on the patent litigation case involving Takeda Pharmaceutical's Prevacid was held with Delaware Court in November 2007. The judge in that case issued his opinion approximately five months later in late March 2008. The March 2008 decision’s date was a few months prior to the expiration of the 30 months stay for Prevacid. In our case, the 30 month stay for ZEGERID Capsules expires in early February 2010.

Based on discussions with GlaxoSmithKline in their stays objective to focus on emerging markets, we believe that GSK is continuing to make progress under our ex-US license agreement, and we anticipate they will make regulatory submissions in several countries in 2009.

With that, now I'll turn the call over to Debbie Crawford to discuss our first quarter financial performance. Deb?

Debbie Crawford

Thank you, Gerry, and I would like to add my welcome to those joining us this afternoon. I will review highlights of our first quarter statement of operations and balance sheet and our outlook for 2009. Additional financial information will be included in our Form 10-Q for the quarter ended March 31, 2009, which we expect to file with the SEC later this week.

Total revenues for the first quarter were $34.8 million, compared with $24.5 million in the first quarter of 2008. Product-related revenue was $32.1 million in the first quarter of 2009 compared with $21 million in the first quarter of 2008. This reflects the growth in ZEGERID net product sales, which were $27.6 million and the positive contribution of $4.5 million [fund] under our GLUMETZA promotion agreement.

ZEGERID net product sales in 2009 benefited from increased shipment volumes and improved average selling prices over the prior year period.

The net product sales of $27.6 million in the first quarter of 2009 were generally consistent with ZEGERID prescriptions demand in the quarter. This difference from the first quarter of 2008, our net product sales of $19.4 million were significantly lower than prescription demand due to increased inventory levels in the channel at year-end 2007.

As Gerry stated, we reported net income of $1.2 million or $0.02 per share in the first quarter of 2009, compared with a net loss for the first quarter of 2008 of $7.6 million or $0.15 per share.

Our cost of product sales was $1.9 million in the first quarter of 2009, or 7% of net product sales compared to $1.7 million in the first quarter of 2008, which was approximately 9% of net product sales.

We reported license fees and royalties of $1.8 million in the first quarter of 2009, which consisted of $1.4 million in royalties payable to the University of Missouri based on ZEGERID net product sales and $375,000 in amortization expense associated with our acquisition of exclusive US promotion rights to GLUMETZA

License fees and royalties in the first quarter of 2008 were $2.7 million, which consisted of royalties' payable to the University of Missouri and Otsuka America. With the termination of our co-promotion agreement as of June 30, 2008, Santarus is no longer obligated to pay a royalty to us based on ZEGERID net product sales.

Research and development expenses were $3.1 million in the first quarter of 2009 compared with $1.7 million in the first quarter of 2008. The increase in R&D spending primarily was due to our 50% share of the out-pocket clause for the Phase III clinical program for budesonide MMX and the payment of the user fee associated with the submission of the NDA for a new tablet formulation of ZEGERID.

In the first quarter of this year, we became directly involved in overseeing the US clinical program for budesonide MMX, including supervising the clinical research organization, conducting investigator meeting, making clinical site visits with our Scientific Affairs Liason and Home Office staff.

We have added resources and are putting additional plans in place to accelerate enrollment in the US Phase III clinical program. Therefore, we expect to see continued increases in quarterly R&D expenses in 2009, as we increased patient enrollment in the registration and extension trial.

Selling, general and administrative expenses were $26.7 million for the first quarter of 2009, which was comparable to $26.5 million for the first quarter of 2008. Within the category, we incurred an increase in legal fees, advertising and promotional cost for GLUMETZA and increased compensation and health insurance costs. These expenses were offset in part by a decrease in cost associated with advertising and promotional activities related to ZEGERID.

Moving on to some balance sheet highlights. As of March 31, 2009 Santarus had cash, cash equivalents and short-term investments of $47.8 million, compared with $52 million as of December 31, 2008.

The net decrease of $4.2 million resulted primarily from decreases in accounts payable and accrued liabilities, including payment of $3.9 million in research and development expenses, reimbursable to Cosmo Technologies under our strategic collaboration for the MMX product candidate; the payment of a $2.5 million one-time sales mark-down to the University of Missouri; and payment of annual corporate bonuses, all of which were fully approved in 2008.

On March 31, 2009, Santarus also had $4.3 million in long-term investments, representing the aggregate fair value of auction rate securities and auction rate securities rights. As Gerry discussed, we do not believe that we will need to raise additional funds to finance our current operations for at least the next 12months; however, we may pursue fundraising in connection with licensing or acquiring new products.

Turning to our financial outlook for 2009, we are reaffirming our expectation to report product-related revenue of approximately $138 million, representing an increase of approximately 24% over 2008 and total revenues of approximately $145 million. Product related revenues consist of net product sales and promotion revenues.

We continue to expect that research and development expenses for 2009 will be approximately $20 million to $23 million which include the expense associated with budesonide MMX and rifamycin SV MMX, as well as costs associated with the new ZEGERID tablet formulation.

We also continue to estimate that our bottom-line results will range from breakeven to a net loss of $3 million for the full year.

In addition, the Schering-Plough received FDA approval of its NDA for an over-the-counter ZEGERID product, we will a earn $20 million regulatory milestone. Therefore, if the FDA approval occurs in 2009, it will positively impact our financial outlook in the current year.

With those comments, I'd like to turn the call over to Bill Denby.

Bill Denby

Thanks, Deb. First in reviewing ZEGERID as Gerry mentioned, both total and new prescriptions were up approximately 16% compared with the first quarter of 2008. In addition, total and new prescriptions for ZEGERID capsules increased approximately 19%.

As I mentioned in our last call, the first quarter has historically been softest for prescription growth in the PPI market. Comparing this year's first quarter to the 2008 fourth quarter, total prescriptions for ZEGERID were down nine-tenths of a percent. However, we are pleased to report that new prescriptions for ZEGERID were up approximately 4%.

By comparison, new prescriptions decreased by approximately 1% in the first quarter of 2008, compared with the fourth quarter of 2007. We believe new prescriptions are generally a lead indicator for future total prescriptions growth.

We began to see a stronger growth in our prescriptions during the second half of last year, leading to a very strong fourth quarter and continuing momentum into the current year.

We attribute some of this prescription growth to changes we made last summer in our sales call patterns. Although we reduced overall sales call frequency on certain physicians, we increased reach by targeting a new group of physicians who were prescribing ZEGERID, but not with high volume.

Our analysis indicated that this group of ZEGERID writers might be receipted to increasing their ZEGERID usage if we provided more exposure to the features and benefits of ZEGERID through direct selling. We believe that this is been contributing to our growth in new prescriptions.

Now turning to GLUMETZA, this was our second quarter of promoting GLUMETZA and we’re pleased to announce 9% sequential growth in new prescriptions compared with the 2008 fourth quarter. Total prescriptions were up 1.6% compared to the fourth quarter.

However, taking into account the recent introduction of the 1000 milligram dosage strength tablet and the fact that it represents 2-500 milligram tablets ,the sequential growth of total GLUMETZA prescriptions in 500 milligram equivalence in the first quarter of 2009 or the fourth quarter of 2008, was approximately 6.6% and the growth in new prescription 500 milligram equivalence was up more than 15%.

As part of our ongoing promotional activities, we will be exhibiting at three medical meetings to support ZEGERID and GLUMETZA during the second quarter. We will be featuring GLUMETZA at the American Association of Clinical Endocrinologists meeting in Houston in May and the American Diabetes Association meeting in New Orleans in June; and ZEGERID at the Digestive Disease Week in Chicago in early June.

Looking into the future for our product candidates, we believe there are significant commercial domestic market opportunities for budesonide MMX for the treatment of ulcerative colitis and rifamycin SV MMX for traveler’s diarrhea.

Ulcerative colitis is one of two forms of Inflammatory Bowel Disease or IBD. It t effects more than the 730,000 Americans and US retail sales prescription pharmaceuticals for the treatment of IBD were approximately $1.3 billon for the 12 months ended March 31, 2009. This does include sales of anti-TNF products like REMICADE and the recently launched CIMZIA which are difficult to break out for IBD alone because they are also prescribed for rheumatoid arthritis, psoriasis and other conditions.

Ulcerative colitis has no known cause and symptoms that can significantly impact a patient's quality of life. It's characterized by intermittent periods of active disease, referred to as flares and periods of little or no disease activity referred to as remission. There is no know cure for ulcerative colitis. So treatments are aimed at reducing inflammation and maintaining remission. Most people with IBD taking maintenance drugs that help keep symptoms in check even when asymptomatic.

Currently, the first-line pharmaceutical therapy for ulcerative colitis and the treatment is with an oral topical 5-ASA drug. However, significant number of patients taking 5-ASAs may not achieve adequate control of their flares and may experience adverse events such as nausea, vomiting, and diarrhea.

Up to 30% of ulcerative colitis patients require treatment with steroids to induce remission or treat flares, but the length of steroid therapy is limited due to systemic side effects.

A newer entrant to 5-ASA category, Lialda is formulated with MMX technology, the same technology used with budesonide MMX and rifamycin SV MMX. Lialda was launched by Shire in the first quarter of 2007 and IMS sales for Lialda grew up 154% to approximately $167 million for the 12 months ended March 31, 2009 over the prior 12 months. Analysts start expecting continued strong growth for Lialda.

Entocort is the only budesonide product currently used in IBD and it is indicated for the treatment of Crohn's disease. Entocort EC had IMS sales of approximately $165 million in the 12 months ended March 31, 2009, growing approximately 36% over the prior 12 months.

We are evaluating budesonide MMX in a Phase III clinical trial program to determine its efficacy in the induction of remission in patients with mild to moderate ulcerative colitis over an eight-week period. Traditional steroid therapy with an oral systemic steroid like prednisone is effective but the course of treatment is limited due to significant side effects and adrenal suppression.

We believe the treatment with budesonide MMX will result in a significantly reduced systemic side effects associated with traditional steroids because of the target delivery of the active drug to the colon and due to budesonide's profile of low systemic absorption.

Further, the anticipated one pill, once-daily dosage regiment could support patient compliance versus the multi-day multi-pill regiments required by currently marketed ulcerative colitis treatments.

The initial development program for rifamycin SV MMX will be targeted for the treatment of traveler’s diarrhea. rifamycin SV is a broad spectrum topical antibiotic with low systemic absorption which we believe will reduce the potential for any biotic resistance. When formulated with the MMX technology, rifamycin SV MMX is delivered to the colon, which we believe will minimize unwanted side effects on the normal flora in the small intestine.

Travelers' diarrhea is a common lower GI condition, experienced by 20% to 50% of international travelers, or an estimated 10 million people annually. We are also undertaking marketing research to investigate unmet needs in other colonic diseases with an infectious component, where the ability of the MMX technology to deliver rifamycin SV to the colon could be beneficial.

In summary, the optimism of our commercial organization is high at this time with enthusiasm for the prospects of our marketed products, ZEGERID and GLUMETZA and for the prospects of our two lower GI product candidates in the future.

Now, I'd like to turn the call back to Gerry.

Gerry Proehl

Thanks, Bill. We continue to gain traction in the market with ZEGERID and GLUMETZA and are focused on increasing sales of these products. As we look to the future with estimated peak sales potential of $150 to $250 million for budesonide MMX and $50 to $150 million for rifamycin SV MMX, we believe that these product candidates represent significant upside potential in the years to come.

We are holding an analyst investor briefing to share our strategy and vision, provide greater detail on our late-stage clinical development program, and market opportunities for budesonide MMX and rifamycin SV MMX and discuss momentum in our commercial operations. This event will be held in New York City on May 13 at the Omni Berkshire Hotel, and will also be webcast.

In addition to presentations by Santarus executives, join us at the Investor Day for a technical and clinical presentations, will be Dr. Luigi Moro, Chief Scientific Officer at Cosmo Pharmaceuticals the developer of MMX technology; Dr. Simon Travis, an international authority on Inflammatory Bowel Disease who is Chairman of Scientific Committee of the European Crohn’s and colitis organization; and Consultant Gastroenterologist at the John Radcliffe Hospital in Oxford, United Kingdom; and Dr. Robert Steffen a leading expert in traveler's diarrhea.

Dr. Steffen is Professor Emeritus in the Division of Epidemiology in Prevention of Communicable Diseases, Institute for Social and Preventive Medicine at the University of Zurich and the Director of the World Health Organization collaborating center for traveler's health.

If your interested in attending or you would like additional information please contact Martha Hough.

In summary, I want emphasis that we are executing on our strategy to build Santarus into a premier spatiality y biopharmaceutical company. We are focused on increasing ZEGERID and GLUMETZA revenues and managing expenses.

we believe our OTC License Agreement with Schering-Plough and our Licensee Agreement with GlaxoSimithKline for international markets will allow us to diversify and increase our source of revenue without adding infrastructure cost, thus potentially making a significant contribution to our bottom line in the next few years.

Longer term we believe that budesonide MMX and rifamycin SV MMX represents significant upside potential in the years to come in the GI specialty markets we currently address. I would now like to open the call to questions.

Martha Hough

While we are waiting for questions, we'd like to mention that we will be presenting at the 2009 UBS Global Specialty Pharmaceuticals conference taking place June 2nd and June 3rd in London at the Waldorf Hilton. A webcast of our corporate presentation will be available on the Santarus website.

We also invite you to attend our first analyst and investor briefing event either in person or via webcast at 4.15 p.m. Eastern Time in New York on May 13th.

Finally, we encourage you to view an online version of our 2008 annual report that is available at www.santarus.com under the investor relations section of our website.

Okay operator, we are ready for the first question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Aaron Mishel with Thomas Weisel Partners.

Aaron Mishel - Thomas Weisel Partners

Hi. Congratulations on the quarter.

Martha Hough

Thank you.

Aaron Mishel - Thomas Weisel Partners

Few questions here. D you have any price increases on ZEGERID in the quarter?

Bill Denby

We took a price increase on ZEGERID in January.

Aaron Mishel - Thomas Weisel Partners

And what percent was that?

Bill Denby

Its 9% on the capsule.

Gerry Proeh

Capsule and a little bit less on our…

Aaron Mishel - Thomas Weisel Partners

Okay. And then on the promotion revenues. I noticed a sequential -- quarterly sequential decline. Was there something in there beside GLUMETZA last quarter or kind of how you explain the sequential decline?

Debbie Crawford

Yeah this is Debbie. We had mentioned that when you think about the promotion revenue, it really is tied to the net sales and then the gross margin of the GLUMETZA products and that's based upon Depomed’s sales of the product.

So what we had seen in the fourth quarter was generally perhaps a little bit of stocking in the channel associated with the launch of the 1,000 milligram tablet form and so in the first quarter as we had anticipated, what you saw was a little bit of leveling off where the prescriptions were closer to the actual shipments of the products, whereas in the fourth quarter we believe there has been a little bit of inventory holding with the channel, given the launch activity.

Aaron Mishel - Thomas Weisel Partners

Okay, that’s helpful. And then on research and development expense, I mean, we have guidance for the full year, can you give us any color on how you see that cost being allocated over the remaining three quarters?

Debbie Crawford

I appreciate that question Aaron but really at this time, I think all we can provide you with is a test for our payment for instance, putting resources behind our development programs and that we would expect to see R&D expenses increasing, most likely sequentially as we move through the year.

It really is a factor of enrollment activity on the Phase III trial as well as other development activities. But we do want to give investors some visibility to the fact that we do expect basically that increasing as we move through the year.

Aaron Mishel - Thomas Weisel Partners

Okay. And then one last question if I may. On the revenues from GlaxoSmithKline, I mean I know that they launched in Puerto Rico and the Virgin Islands. Have there been any and maybe some other geographies, have there been any revenues on the income statement there and if so where would they show up?

And if you can, kindly can you provide any color on the outlook there. I mean, I know you’ve said that they plan to file some submissions this year. Any color on your expectations for that revenue line?

Debbie Crawford

With regards to the revenue we recognized from Glaxo, that really would be in a contrast revenue, and what you see currently is primarily the amortization of the upfront payments that we received from them, and we expect that amortization to move through the second quarter. With regards to other territories, they've not yet generated revenues from any other territories. They are currently promoting ZEGERID in Puerto Rico and US Virgin Islands.

At this time, we're not in a position to provide any more specificity on the revenue potential, but we are excited to see that they are making progress, and as Gerry indicated, we do expect that they'll be making submission this year in a number of territories.

Operator

Thank you. Our next quarter comes from the line of David Amsellem with Piper Jaffray.

David Amsellem - Piper Jaffray

You said on budesonide MMX, the filings timeline is [2nd F 2011], did I hear that correctly?

Gerry Proehl

That's correct.

David Amsellem - Piper Jaffray

Couple of questions on rifamycin, how do you believe the product is differentiated from Xifaxan?

Gerry Proehl

I think there are a couple things that are different about the product, at least as it relates to the travelers' diarrhea. Current plan is to look to dose the product in a BID dosing in the travelers' diarrhea trial. Xifaxan is currently approved for TID dosing or three times a day dosing. As far as the bugs they kill have quite a bit of similarity as I think the delivery system is quite different. If you look at the delivery system for Xifaxan, it's going to be peak blood levels in about two hours. Ours are going to be quite a bit longer than that because we're primarily targeting the colon with our products.

So for those diseases where the bacterial infection is primarily in the colon, we are going to deliver most of our product into the colon and we think we can be very effective by doing it that way. We also think that certainly some of the other diseases we talked about that have infections that are primarily located in the colon then we can be very effective.

David Amsellem - Piper Jaffray

I guess on Xifaxan, its proved for travelers' diarrhea that most of the drug disease is used off-label uses, so my question here, which expansion indication that you've alluded to earlier, do you expect the prioritizing? Do you think you'll run any additional studies in parallel with the phase III program for rifamycin?

Gerry Proehl

We are currently going through that analysis right now. As we’ve stated the before, there is a European partner Dr. Falk Pharma. So we're also communicating with them and I know they have some interest in additional indications, so I think once we identify what other indications, we would like to move forward in, then we will start to think about trial design, whether not we would actually beginning your trials prior to completing the trials in travelers' diarrhea, we haven't made those strategic decisions yet. I think it's more likely that if we were to start anything. it would probably be more in a phase II area to do some exploratory work in one of those other disease areas.

David Amsellem - Piper Jaffray

Just one last question on ZEGERID, can you talk about how you envision the availability of generic Prevacid later this year impacting ZEGERID in terms of both prescription volumes and net selling prices.

Gerry Proehl

We certainly have now quite a bit of experience with other generic products having generic omeprazole out there and generic pantoprazole out there. Certainly we expect it will have some impact on us and when you look at what happen with generic pantoprazole, there was an impact for about a three to six month period and then we saw things get relatively back to normal.

I do think the difference here is that with Takeda, they are putting all of their emphasis now on KAPIDEX. They are certainly trying to move that product on the formularies and putting much less emphasis on Prevacid. So I think it's quite different and we don't know at the end of the year when we think generic will come on in the market, how much of the Prevacid business will actually be available that you switch to generic.

Again I think the key thing David for us and what we continue to hear from physicians is ZEGERID is the only immediate release proton pump inhibitor and so when you compare it to any of the delays to these PPIs, I think we've been able to establish the differential advantages of ZEGERID over the delay of these PPI. That's why when you look at the overall prescription growth, you see ZEGERID continuing to grow while the other PPIs are actually not growing and many cases declining.

Operator

(Operator Instructions) Our next question comes from the line of [Michael Higgins with Foresight Research].

Michael Higgins - Foresight Research

So, couple of quick questions here. You talked about rifamycin and the additional indications. when might you and Dr. Falk make a decision on going forward with one of those plans?

Gerry Proehl

We don't have Michael any specific timing. Certainly, we would want to get into the phase III travelers' diarrhea trial and get those trials up and running and so would we start anything before we complete those trials, possibly. But, we haven't made any final commitment there. I think as we've tried to state in our overall presentation that we are trying to balance our overall revenues and expenses. And so, we are going to make sure that we're getting a good signal on RIFAMYCIN and traveler's diarrhea before we start moving into a lot of other clinical work on RIFAMYCIN SV.

Michael Higgins - Foresight Research

So its -- your '09 guidance doesn't reflect initiation of any of these trials then?

Gerry Proeh

Right. So, what we've said is we actually expect the Phase III trial for traveler's diarrhea to start in first half of 2010.

Michael Higgins - Foresight Research

Okay. And then can you give us an update on the reps, kind of the call strategy with GLUMETZA? Are they all with ZEGERID first versus second, how many reps are out there, number of targets, that kind of thing?

Gerry Proeh

There are about 300 representatives and roughly 30,000 call-down audience. Primarily the are joint targets with ZEGERID and GLUMETZA, there are on either end unique. ZEGERID targets, i.e. gastroenterologists that don't prescribe much anti-diabetes drugs and on the other hand GLUMETZA with the endos.

So, we are constantly looking at making sure that we are optimizing that resource and we continue to look at the productivity of those doctors to make sure that we're optimizing the sales force.

So, right now we are trying to look at expanding the joint targets and that’s pretty much the strategy.

Michael Higgins - Foresight Research

How many do you currently have as joint targets?

Gerry Proeh

There is probably a little over 20,000 that are joint targets Michael and what you would expect we're going is, each target we look at ,we look out for the overall sales potential for that target as it relates to GLUMETZA and ZEGERID. If there's a doctor you are calling on, lets say a Primary Care doctor who is a big writer of diabetes product and PPIs, then GLUMETZA is likely to be in the first detail position. And so we're going to really drive what product we think has got the greatest growth potential with each physician we're targeting.

Michael Higgins - Foresight Research

Okay. Very good. Thanks, guys.

Operator

And there are no further questions at this time. Please proceed with your presentation or any closing remarks.

Gerry Proeh

Well, I'd like to thank you for your interest in Santarus and for joining us in this call. We're optimistic about our prospects at Santarus. We've made significant progress with our commercial operations, have licensing agreements with two major pharmaceutical companies to provide added revenue streams, and are developing late-stage products to address large market opportunities.

If you have any further questions, please feel free to contact me, Debbie Crawford or Martha Hough. Have a great day.

Operator

Thank you for joining today's conference call. You may now disconnect.

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