Santarus: Business Fundamentals Are Unchanged

Recently, an article from Seeking Alpha has got me scratching my head! The title: "Santarus: Business Fundamentals Improving", which was written by an analyst from Zack's Research. The article highlighted recent additions to Santarus's business plan through the in-licensing of: Glumetza, Budenoside, and Rifamycin. Furthermore, the article suggested that these additions are net positive since little-to-no changes are needed in existing infrastructure.

For a minute, let's talk about what 'fundamental' is for Santurus (SNTS). Fundamental is continued success with prescription Zegerid. The reason why the stock price is where it is today, is because of the use-patent in question. The day that Santarus received the ANDA from Par (PRX), the stock price dropped from $5 to the $2's. ¡Mamma Mia!

This company's flagship and only chance for continued success is prescription Zegerid, Period! Although the Markman hearing was in favor of Santarus, 'use patents' are relatively difficult to protect in court compared to patents with New Chemical Entities. Furthermore, the fundamental concept of adding a buffer to a proton pump inhibitor, is medically simple.

I'm no patent lawyer, but how will Santarus prove that one skilled in the art, wouldn't know that the addition of a buffer to a PPI would help protect the acid-labile drug? While Zegerid's patent are in questions, there is no reason to own this stock as Zegerid represents over 80% of Santarus's revenue, unless you are a risk tolerant investor (which is the disclaimer I would have liked to see with their article).

The article also states that, "Head-to-head data clearly shows that Zegerid is a superior option for ... night-time breakthrough ..." I wonder if that head-to-head data was against newer therapies like Kapidex, Takeda's new dual-delayed release formulation? I don't think so! The competition for the Nocturnal Acid Breakthrough ("NAB") market is heating up and I doubt that Santarus's rudementary PK data will give Zegerid a fighting chance, especially against Kapidex. Even Santarus's Glumetza partner, Depomed (DEPO), has a NAB formulation in the works. Not to mention, AstraZeneca (AZN) and Xenoport (XNPT).

But to humor Zack's, let's examine Glumetza, Budenoside and Rifamycin. Firstly, let's put Budenoside and Rifamycin in the 'risk' bucket, since both are still in clinical trials. Not only will these two pipeline additions be a continued cash burden, but there is no certainty that they will actually succeed. Secondly, Glumetza is out of Santarus's therapuetic focus. There is a fundamental difference between calling on Endocrine specialists and GI specialists. Most of the recent uptick in Glumetza sales is from an increase in pricing and the addition of the 1000mg pill. What this means is: Santarus is having difficulty selling Glumetza. ¡Ay panini! Not to mention, 25% of sales is Depomed's share.

The Zack's article focuses on Glumetza, Budenoside, and Rifamycin, and I'm left scratching my head on how the fundamentals are improving? Aren't you? The fundamentals are unchanged, and to be accurate, Santarus has extended itself beyond it's therapeutic focus with Glumetza while taking on considerable risk with Budenoside and Rifamycin. By the way, I didn't mention the dilution with that deal! The point: Santurus: Fundamentals Unchanged! I expect more from Goldman Zack's.

Disclosure: Author holds no position in Santarus.