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A biotechnology company is allowed three-five years for speculation to drive stock's performance, but once sales are produced and FDA approvals occur, fundamentals must be the driver of value. On Tuesday this author was very impressed with the earnings reports from two biotechnology companies, both very different in public perception, but perfectly executing individual product launches.

Santarus, Inc. (NASDAQ:SNTS)

Santarus is trading higher by almost 11% recently after reporting earnings on Monday. The company beat expectations with revenue growth of 73% and an EPS of $0.32 ($0.18 better than the consensus). In addition, the company upped its full-year guidance to $330-$340 million, which is better than the $320-$325 million issued during the last quarter. The growth created was a joint effort by all of its five FDA approved drugs, including 21% growth in new prescriptions for its best-selling drug Glumetza -- and sales that nearly tripled for Zegerid (a drug that re-launched in the quarter).

While Santarus' quarter was solid overall (with very few, if any, negatives to report), I was most impressed with the performance of its newly approved and launched drug, Uceris. Uceris was approved back in January 2013, but the company did not begin promoting it until the week of February 22 due to the hiring of 85 new sales people to market the drug. Hence in one full month the new drug reported sales of $6.60 million and Santarus reported total weekly prescriptions of 690 for the week ending April 19, 2013 ... far above expectations.

In the U.S. there are an estimated 700,000 people who suffer from ulcerative colitis, and Uceris is targeting those with acute mild to moderate cases. In the company's post-approval conference call it reiterated its peak sales estimate of $300 million, but was very conservative when discussing expectations and performance for 2013. In many ways it seemed almost as if the company was trying to prepare analysts and investors for the unknown, making statements such as those below in regards to the launch and its effect on fundamentals:

"I think when we look at the UCERIS launch, it will be important to factor in the availability of patients and how quickly patients might require treatment and in fact seek treatment from their physicians, so I think it's important that the forecast related to UCERIS, keep in mind, are [sic] need to ensure that patients are getting to their physician offices to understand that we have this new treatment option available to them."

"Our assumption in our guidance is that, we will be booking revenues based upon shipments. However, we are not planning to have a large amount of product in initial stocking."

"We are going to be working with the Chron's [sic] and colitis foundation to try to get to the patients who would like to know that there is a new therapy available, but we think that will take a little bit of time."

"It will take a little bit of time to get it started, but as we've said before, we think that peak sales for this product about [sic] $300 million."

Basically, the company was preparing investors for "time" (patience) and the fact that sales could be slow at first. Santarus CEO, Gerry Proehl, specifically mentioned "Entocort EC" for Crohn's disease and its off-label use. The company clearly thought that educating patients about available treatment options for this disease would be lengthy. Yet in the conference call on Monday, the tone was completely different.

During the call, Santarus discussed its great response from physicians -- having larger levels to channel -- and that growth in prescriptions has been consistent. As a result of this rapid change in sentiment from the company, I too am optimistic and believe that sales of this one product are encouraging and something to monitor. Yes, the company still has four other products, but Uceris could provide great revenue growth in 2014 and beyond, lessen the market share of Glumetza, and position the company well for when its Phase IIIB study on the product is complete. Thus I say: expect continued growth and higher returns from Santarus.

ARIAD Pharmaceuticals (NASDAQ:ARIA)

Santarus develops and sells five products, while ARIAD Pharmaceuticals is a company with one product-- a potential blockbuster product. The company's recently approved Iclusig is used for the treatment of adult patients with chronic, accelerated or blast phase chronic myeloid leukemia that is resistant or intolerant to prior tyrosine kinase inhibitor (TKI) therapy or Philadelphia chromosome-positive acute lymphoblastic leukemia that is resistant or intolerant to prior TKI therapy. Iclusig was one of the most watched drugs in development, with success that led ARIA from a price of $1.50 to more than $25 in a period of less than four years. However, recent questions and concerns have created fear among retail investors thus leading to a decline of 26% since December 2012.

In several conference calls and interviews, ARIAD CEO Harvey Berger has been quoted as saying that the drug could bring annual sales of $800 million from patients for whom previous treatments have failed, and sales could hit $1.5 billion with the additional use against new cases. This makes Iclusig a potential blockbuster. Yet no one has ever doubted its sales potential, but rather the execution, concerns of liver toxicity, and various other side-effects. Not surprisingly, investors were very anxious to see the quarterly sales of Iclusig in its first quarter of launch.

For the first quarter, analysts were expecting, on average, $5 million in sales. ARIAD posted $6.46 million in sales, and more importantly, there were more than 225 unique prescribers and more than 325 patients that were being treated with the drug. This shows a large number of physicians are already prescribing, which bodes well for future growth/sales. Furthermore, 65% of those physicians were community-based. ARIAD has expected large support from community oncologists and this shows that, despite a large number of prescribers, there is still room to grow.

In my opinion, the early success of Iclusig is incredible, although the company still has a lot of work in order to reach blockbuster status. Overall I am highly impressed, and with the stock's recent loss I think the stock is a buy. The company still has trials in Europe and Japan along with studies to expand the product's use; hence sales growth should remain progressive. I will say that with the company losing $64.7 million in the quarter, it will have to get costs under control and manage its $400 million in cash, cash equivalents, and marketable securities very closely. However, I think most investors realize that launching a product of this size is not cheap, and that losses should be temporary.

Conclusions

Both Santarus and ARIAD Pharmaceuticals posted earnings that exceeded Wall Street's expectations. The companies are at different stages of development, yet investors should be satisfied with the early progress from these two product launches. In my opinion, investors should watch both stocks very closely in the coming months. Santarus saw large gains following its report, with Uceris data being kept from the public eye. Meanwhile everyone was watching ARIAD's product with immense interest. Overall, I give both companies an "A" and expect more improvements in future quarters.

Source: 2 Biotech Companies With Strong Product Launches To Monitor