Santarus, Inc. (NASDAQ:SNTS)
Deutsche Bank 38th Annual Healthcare Conference
May 30, 2013 8:40 a.m. ET
Gerald Proehl - President and Chief Executive Officer
Dave Steinberg - Deutsche Bank
Morning everyone. My name is Dave Steinberg, Specialty Pharmaceuticals Analyst at Deutsche Bank and we’re delighted to have with us Santarus. This is a company that for a long investment period has had it all come together for them in the last couple of years due to a combination of product acquisitions, pipeline developments and in-licensing. It has really strong script growth and as a result strong revenue growth and you can see the stock chart by the desk performing spec coming in over the last couple of years.
So to give you an update on the company and discuss the pipeline I’d like to introduce Gerry Proehl, Chief Executive Officer
Thanks David. I will be making some forward looking statements so please refer to our SEC filings. Santarus is a profitable specialty biopharmaceutical company. We have five marketed products, three products in development. Two of those products in development are biologic products that we have in license here recently. In 2013 January we received approval for Uceris, our product for ulcerative colitis and launched that product mid-February of this year. I’ll talk a little bit more about that in the next minute.
We also in September of last year had an Appellate court decision go our way on Zegerid, our first product we launched that Generic Company stopped shipping their product and we saw a significant increase in our sales in the fourth quarter and a slightly bigger increase in the first quarter of this year and I’ll talk a little bit more about that.
And then also here recently we did receive an additional patent on Cycloset, our product for type 2 diabetes. That product we had in licensed. It only had a few years of patent life on it. We had done quite a bit of work on the product and we were able to get an additional patent that issued that gives us an additional 20 years. So it allows us to make a little more investment in Cycloset based on the life of the product.
Last year we did have just under $220 million in revenue GLC. This year we continue to see very nice growth in revenue and I think even more importantly we see a substantial increase in our profitability. If you look at our portfolio on the left has our commercial products. We have five products; Uceris, Zegerid, Glumetza, Cycloset and Fenoglide. We’ve estimated peak sales of those products between $650 and $750 million.
We have two late stage products; Ruconest which we filed at the LA last month. We expect to hear acceptance of filing in mid to late June and then would have a producer date of April of next year. And then Rifamycin SV MMX for traveler’s diarrhea. We’ve completed on pivotal Phase 3 study with positive results and we’re awaiting our partner completing their Phase 3 study. We’ll take those two Phase 3 studies and submit the NDA once those are completed. And then we have an earlier stage antibody program just completed Phase 1 late last year. Expect to move into a Phase 2A study in the fourth quarter.
The way we think about the company is we’re really focused on the specialist. We call in endocrinologists and a very select group of primary care doctors that are high prescribers of diabetes products. We also call in gastroenterologists and we’ll be moving into the allergy immunology marketplace with the launch of Ruconest. And then down the road as we look to launch our antibody program, we will be going to rheumatologists for rheumatoid arthritis.
The way to think about the company from a financial strategy standpoint is really looking to leverage our commercial organization. As we move into more specialty areas and as we’ve added products into those specialties, we’re able to leverage the sales force. And it allows us to increase sales per rep and increase our overall revenue, but at the same time as you move into more specialty areas, you can actually reduce your SG&A as a percent of revenue while continuing to invest in R&D. One of the things that we’re focused on is taking our current product and looking to broaden the indication and I’ll talk a little bit more about that. That will allow us to increase revenues but also increase profitability.
As far as our growth strategy, really focused on taking our products that we have, Uceris, Rifamycin, Ruconest and SAN-300, our antibody program and looking to expand the indications for those products. At the same time we are out there looking for additional products. Again we’re trying to leverage the commercial organization. The way we do that is to add a second or a third product that allows us to become much more profitable and currently focused on gastroenterology and endocrinology, but we’re not averse to looking at other smaller specialty areas that we think can be profitable for us.
And we have announced that we’re looking to add one additional senior executive position focused on strategic planning and acquisitions for a couple of reasons. Number one, we think as we grow our revenue base it gets much more difficult to significantly increase revenues by just licensing one off products. So we really will start looking at smaller companies that would allow us to extend in the areas we’re in or potentially move into other therapeutic areas. The other thing we’re looking at is geographic expansion. Should we stay in the U.S or we move into other areas outside the U.S? And we’ll continue to do some of that analysis over the next one to two years.
Our sales organization is made up of 235 sales reps. All 235 reps sell all of our products. The reason we do that is efficiency. We call it reduced windshield time. What that times is they don’t have to drive long distances to call on doctors. They can just drive around the corner, call another doctor that increases their efficiency. It allows them to call on probably about one additional doctor per day and to add that by 235 reps. That’s very significant the number of details they can get.
The other thing it allows us to do is near territories and high metro areas that have high value physicians. One of the things that we learned over the years is when you’re launching a product the most important thing is frequency of calls. There’s nothing more important than getting the frequency of calls. You’re trying to change habits of doctors. The only way to change their habits is to be in there on a regular basis. When you’re one rep trying to get in there on a frequent basis, it’s sometimes difficult. When you have alternating reps in there, it’s much less difficult. That allows us in general to be in the doctor’s office about every week detailing them on a product like Uceris. So the increased frequency really improves our overall ability drive prescription.
I mentioned Uceris. Uceris is a minimally absorbed steroid for ulcerative colitis is for induction of remission of mild to moderate ulcerative colitis. In the first quarter we launched the product mid-February. We reported $6.6 million of sales. We’ve gotten excellent reception for this product for a couple of reasons. Number one, they’re very familiar with budesonide. Budesonide has been around for a long time. It was a delivery system for the small intestine for crohn’s disease, a product by the name of Entocort EC. And the delivery system used is an MMX delivery system developed by Cosmo Pharmaceuticals. that particular company developed their first product which is called Lialda and it’s sold by Shire. It’s a colonic delivery system. So the physicians are very familiar with budesonide. They were very familiar with the colonic delivery system. So it was very easy for them to see that Uceris was delivering the product to the colon for ulcerative colitis.
The other reason that they really jumped on board pretty quickly was there’s a real unmet need in the marketplace. Many doctors will start a patient off on a 5-day SA like Lialda or Apriso or Asacol, but the patient will continue to flare. When they flare they have to treat them with something. Typically what happens is they’ll treat them with a systemic steroid. The systemic steroid works very well. the only problem is there are significant side effects. The patients end up having problems sleeping. They get acne. They get what’s called moon face. They gain weight, lots of really nasty things that the patients don’t like and they end up not taking the steroids. Longer term what the physicians are worried about are either affecting bone mineral density.
The second thing is steroid dependency. Many times if you put a patient on steroid on and you keep them on for any period of time, when you try to withdraw the steroid the patient will immediately flare and you have to put the steroid back on. So the physicians really were looking for a non-systemic steroid to treat these patients without the same side effects, but with the efficacy. One of the things we’re seeing with Uceris is we’re seeing very rapid effects for the patient. These patients are typically having anywhere between 15 to 20 bowel movements a day when they’re flaring and we’re seeing within one to three weeks these patients are moving down to four, five bowel movements a day. It’s a significant improvement.
The positive thing is not only is it helping the patients, but when a patient sees that type of an improvement in their bowel movements, they immediately pick up the phone and call the physician and let them know how well the product is working. When that happens, it’s an immediate feedback lead to the physician and reinforces that they’re doing the right thing in prescribing Uceris. The patents do go until 2020 and we expect to read out a Phase 3B study in combination with 5-ASAs in the fourth quarter this year.
I mentioned Uceris is typically used early on, on top of a 5-ASA, but we are seeing that physicians are starting to move to using Uceris first line. Typically what they’re going to do on a newly diagnosed patient or a patient that’s on no background therapy is they’re going to go ahead and put them on a 5-ASA and they’ll put them on Uceris at the same time. The reason they’ll use both products. The reason they’ll use both products is because Uceris is going to induce remission much more quickly than a 5-ASA. Longer term they’ll go ahead and titrate them off of Uceris and they’ll maintain them on the 5-ASA.
If you look at the marketplace it’s a substantial marketplace for both crohn’s and ulcerative colitis, about a little over $2 billion. On the right you’ll see sales of Entocort EC and the generic Entocort EC. It’s about $400 million. If you want to compare the crohn’s market to the EC market, about the same number of patients that have crohn’s disease have ulcerative colitis. So, very similar size marketplaces. And we’ve estimated our peak sales of at least $300 million.
This is the advertising for the professional marketplace for the physician and it’s really getting them to think about the power of a steroid which are very powerful agents, but something that the patient or physician can control in their hands.
We also have an outreach to the patients. One of the things we’re most concerned about is since there hadn’t been a lot of new therapies for patients with mild to moderate ulcerative colitis that patients might not actually seek treatment for their disease. When they flare sometimes they’ll try to either double up their 5-ASA or they might use some steroid that’s sitting in the medicine cabinet to try to control the flare. So we have an outreach. We are going through a lot of different media. YouTube and web MD, et cetera to get to the patients to drive them into the doctor’s office. We think if we can drive them into a doctor’s office we have a very good chance of being used.
These are our prescription trends. You can see in the blue is TRx, and the red NRx and in the light blue are the weekly prescribers. So we’re seeing very nice consistent growth in all three. We expect to see consistent growth in the prescriber base. There’s been about 2,000 doctors to date that have written at least one prescription of Uceris. We’re calling on about 7500 gastroenterologists all of whom are potential prescribers to this product. So we think there’s still lots of upside growth with Uceris.
Our second product I mentioned Zegerid which we won the appeal in September of last year. in the two year period since the generic launch you can see the decline in the prescriptions without promoting this product. It’s a very promotionally sensitive product. We started promoting the product again in mid-February when we launched Uceris. We’re just now seeing a stabilizing of the prescription trends and we expect as we move into the second half of the year we’ll start to see those trends slowly start to increase. The sales for our first quarter were just $25 million for Zegerid. And this is for us a very high margin product. Again we’re already in the gastroenterologists’ office selling Uceris. This is the second product detail for us and we have just about 90% gross margins on this product.
Glumetza is our largest product. It’s a first line therapy for type 2 diabetes. It’s an extended-release metformin product typically used in patients that can’t tolerate generic metformin. Most managed care plans are going to require a physician to try a patient on generic metformin before they go to any other product. That being the case, about half the patients will experience GI side effects, particularly as the physician tries to titrate the dose. You normally start the patient off at 500mg and then move up in 500mg increments. As you get to about 100mg, the patient starts to experience GI side effects, sometimes to the point where they just can’t take the product anymore.
The doctors have two choices. They can either go to a product like Glumetza which allows them to continue to titrate the dose and optimize the metformin they’re using by using Glumetza. Or they can add on a second product. The problem with adding on the second product is number one you’re increasing the compliance of the patient. Now they’re taking two products. Second thing is you’re adding on a second copay. Typically for a generic it’s a $10 copay. A second product might be another $25 copay. We offer copay assistance through an eVoucher program that’s $10.
So the physician can move a patient from generic metformin onto Glumetza and the amount of money they’re actually paying is going to be very similar. And we see nice continued growth in this marketplace. The docs we call on wrote about 8.3 million generic metformin prescriptions and about 300,00 Glumetza prescriptions. So we’re not talking about getting a huge piece of this marketplace. We just need to get a little share of this marketplace and we can continue to see good growth in Glumetza.
Cycloset is our other product for type 2 diabetes, typically used anywhere between second and fourth line. It’s a centrally acting bromocriptine mesylate product. This is an interesting product in that it was the first product approved under the FDA guidelines that require all type 2 diabetes products to do a large cardiovascular safety study. That particular guidance was put in place after some of the issues with Avandia.
This particular product not only showed that it was cardiovascular safe, it actually showed there was a 52% improvement in composite endpoints of stroke MI and cardiovascular death, the first product to show that type of improvement. So not only does it lower HPA1C, but it also is very good from a cardiovascular standpoint. Based on that just recently were added to the AACE guidelines and one of the things in the AACE guidelines that they highlighted was if you’re a type 2 diabetic and you have a previous history of cardiovascular disease or multiple cardiovascular risk factors, you should strongly consider adding Cycloset to the dosing regimen. And we think that’s going to help us in the future as we look to continue to grow Cycloset.
Last product we’re selling is Fenoglide. It’s a fenofibrate product. This is the third product detail for us. It’s not a large product, but it does add some money to the bottom line. We sold just under $2 million in the first quarter.
As far as the pipeline, I mentioned Ruconest, Rifamycin and SAN-300. We are looking to do some additional things with Uceris. In addition to our post approval commitment to do a pediatric study, which we expect to start sometime next year, we also are looking at another indication for Uceris. It’s called microscopic colitis. Microscopic colitis is not as severe as ulcerative colitis. It typically occurs in older females. It’s a disease where you have inflammation in the colon, but you actually have to do a colonoscopy and biopsy to identify the disease. The patients end up having watery diarrhea and it’s a problem for the patient certainly.
Uceris is clearly a product that should work in this disease. We’ll be going to the FDA to work out a clinical trial that’s acceptable to the FDA and then moving forward likely next year with the study in microscopic colitis.
Ruconest is our recombinant C1 esterase inhibitor. I mentioned we filed the BLA for acute treatment of HAE. And we will be approaching the FDA on both a study design for prophylactic treatment of HAE and also for treatment of acute pancreatitis.
Rifamycin for traveler’s diarrhea and SAN-300 antibody we plan on initiating the Phase 2A study in RA in the fourth quarter of this year. and then looking to do a study in inflammatory bowel disease, most likely ulcerative colitis sometime in 2014.
Ruconest is a very unique product in that it’s the reversed recombinant C1 esterase inhibitor. There are a couple of plus drive products, Cinryze from ViroPharma and Berinert from CSL Behring that are currently on the market. But this will be the first recombinant product. Certainly considered a safe way of delivering a protein. There’s no issue with any thromboembolic event and we think that the efficacy of this product is going to be excellent. If you look at the amount of C1 esterase inhibitor in our product, we have 50 units per kilogram. Berinert has 20 units per kilogram and Cinryze has about 12 to 13 units per kilogram. So we’re able to deliver a lot of the C1 esterase inhibitors that we think will give the patient the efficacy they’re looking for without any type of rebound effect. And since this is a biologic it will fall underneath the 12 years of data exclusivity.
There were three pivotal studies done. This is the third pivotal study done under a SPA with the FDA. You can see the P value was statistically significant. And I mentioned no thromboembolic event or anaphylaxis or neutralizing antibodies for this program. So we feel very good about this product. We think that there’s huge upside potential.
This is how the market looks for HAE. Traditionally patients were used on anabolic steroids. While there may be a few males out there that want to be on anabolic steroids, most females would prefer not to be. And so you’re seeing those patients migrate over more to the acute treatment either with Berinert, Kalbitor or Firazyr. For the very severe patients that are getting attacks once or twice a week, they would look to move on to a product like Cinryze that would be treated prophylactically taken twice a week.
Rifamycin for traveler’s diarrhea, I mentioned we completed a Phase 3 study. You can see the P value in the first bulleted point, .0008, very highly statistically significant results. Our partner doctor Falk Pharma is conducting a non-inferiority study versus ciprofloxacin in India. They’ve completed about 750 patients. They’re waiting for a final approval from the regulatory authority to complete the enrolment of an additional 250 patients. There are issues in India with all clinical studies right now. We expect that to be cleared up probably mid-year and look for Dr. Falk Pharma to begin enrollment of the additional 250 patients as we move in the second half of the year. he should complete enrolment, if they can begin in about the August, September timeframe, they should complete enrolment by the end of this year.
Our antibody program is very interesting. It’s an anti DLA1 antibody. It affects circulating T cells and monocytes that were licensed out of Biogen Idec. This particular product was demonstrated to work in multiple preclinical models from RA models to inflammatory bowel disease, psoriasis, clonal transplant. So very interesting compound. We completed Phase 1 work first with an IV form, then with a subcutaneous formulation that we developed. Saw good safety with this product and expect to move it into RA patients in the fourth quarter of this year. and then as I mentioned, as we move into 2014 we’ll look to also do a study in most likely ulcerative colitis. We also expect second half of this year to begin a longer term TOC study that will complete next year.
You can see our financials here. Revenues are just under $80 million in the first quarter. That compares to $46 million for the first quarter of 2012. So significant growth in overall revenues. As far as profitability, I mentioned before we’re really getting to the point where we’re starting to become a much more profitable company as we focus on specialty audiences. We had net income of just under $19 million. So, very good net margins on our products and you can see our non-GAAP adjusted earnings of just under $24 million. So we’re generating a good amount of cash. And at the end of the first quarter we had just under $98 million in cash.
We have provided guidance at the end of the first quarter. These are the numbers for revenues. The average for the guidance is $335 million and for net income $61 million and adjusted EBITDA $86 million. So we feel as a company we’re really getting to the point where we’re starting to generate significant revenue and profit and we see that growing over the next few years.
As far as milestones, you can see the first three we hit. I mentioned we’ll complete enrolment of Phase 3B middle of this year with data. Fourth quarter of this year begin the Phase 2 for RA for SAN-300 and continue to look to drive prescriptions and hit our revenue and profit numbers.
With that, David I’ll go ahead turn it over to you for questions.
Dave Steinberg - Deutsche Bank
Okay, thanks Gerry. We’ve got 10 minutes. So please ask some questions if you’d like. All right, I’ll ask one. So in the ulcerative colitis market, there’s been some shifting sands. You’ve got (inaudible) clearly going through a disruption now and Asacol are trying to switch. Looks like Lialda is really gaining share. How do you think this will help you if at all? And secondly, at the recent DDW meeting, what kind of reception did you have for Uceris?
I think with regards to the changes going on in the 5-ASA market, it really won’t have much of an impact for us. Most of the time we’re going to be used either on top of any 5-ASAs, whether it’s Asacol or Lialda or Apriso. We’re going to be used on top of 5-ASA or we’re going to be used in combination with initiating therapy. So it doesn’t really matter which 5-ASAs actually will be used. With regards to DDW, we had great reception at DDW. We had a symposia that was packed, 450 people at the symposia. So there was a lot of buzz about the product. Clearly there’s a need in the marketplace and the gastroenterologists see the need and are using a lot of the product.
You mentioned at the start of the talk that you start with Uceris with the 5-ASA and then eventually the doctors will look to titrate that off. Can you explain what that would look like as we think about the launch of, when does it peak and then is there a decline that comes and what does that look like?
Sure. So typically what a physician will do and this is really more with their use from traditional steroids is they start a patient on a 5-ASA and then maintain them on a 5-ASA. Those patients will flare typically anywhere between two to four times a year. when they flare they have to try to bring the flare under control. What they’re doing is they’re adding Uceris on to bring the flare under control and then once they feel it’s under control, they’ll take them off the Uceris. Now in our clinical studies, you could take them straight off of Uceris and they didn’t re-flare. But traditionally physicians are very familiar with systemic steroids where you have to titrate the dose.
So some doctors will actually titrate Uceris. And the way they titrate Uceris is they might tell patients take the product every other day for a couple of weeks, then take it every third day for a couple of weeks and then stop taking the product. So they’ll withdraw the Uceris after the flare is under control and then when the patient flares again they’ll go ahead and give it again. So that’s what you’re really going to see. You expect to see about eight weeks’ worth of therapy. They’ll titrate them off and then when they flare again they’ll see another eight weeks. We think that typically a patient is going to seek treatment a couple of times a year.
Dave Steinberg - Deutsche Bank
Gerry for Ruconest. The half-life is clearly shorter than the (inaudible) drive drugs. So I guess how it works well in prophylaxis. And then secondly, do you view this, somebody at Pfizer think there’s about 2,000 patients on AT products but yet the patient population is close to 10,000 and 10 to 20% of those patients die. Why are not all 10,000 of these patients on HAE products and you think you’ll get there and do you see yourself taking more share from Cinryze or the other products for both?
So the first question has to do with the half-life of Ruconest as it relates to prophylactic treatment. Obviously our first indication will be for acute treatment of HAE and we have excellent results there. There’s been quite a bit of work done that would indicate that it’s not actually the half-life of the product in the bloodstream that determines the overall efficacy of the products and duration of the product. It’s actually the peak blood levels you reach in the biologic half-life of the product. A couple of things that we think are indicative of that. The first is we conducted a study with 25 patients that were getting fairly consistent attacks every month. They went on Ruconest for a few months and they saw their attacks reduce by about 50% which is what Cinryze saw in their prophylactic treatment.
So it’s somewhat indicative that this product will work for prophylactic treatment. I will point out that the one thing that we didn’t do in that study was not placebo controlled and because these patients typically when they’re under stress is when they have their attacks. It could be that because they knew they were on our product they were under less stress and didn’t have attacks. So that’s why we needed to do the placebo controlled study. The other thing though was Cinryze if you look at its half-life it should work being dosed twice a week. They’ve done some additional work, dosing once a week and it shows similar efficacy to twice a week. Based on their half-life it shouldn’t work once a week. So we definitely think there’s some other things other than the half-life within the bloodstream.
I was going to ask about the same question regarding this Ruconest. I guess the results were acute and you haven’t done the prophylaxis yet.
That’s correct. When we approached the FDA last year they actually asked us to wait until we submitted the BLA and got acceptance of the BLA before we approach them about prophylactic treatment trial designs. So as I said we expect to hear about mid to late June on acceptance and as soon as we hear from the FDA an acceptance for the BLA we’ll approach them on a trial design and look to get the trial done under AACE.
And how do you -- based on your knowledge of this product, how do you position your product vis-à-vis Cinryze?
So we actually think if you look at the data on Cinryze, while it’s an effective therapy, they get about 5% thromboembolic events. now we don’t know exactly what’s causing the thromboembolic events. Certainly there are things within the plasma that are in the product that could be causing that. We’ve seen no thromboembolic events in our product. When you’re dosing a patient once or twice a week, that becomes a big issue. And clearly in other categories and other blood categories factor 8 and factor 9, when we’re coming the products that have come out of the marketplace, they dominated the marketplace. Basically based on the fact that patients would prefer a safer product if they get equal or better efficacy.
Dave Steinberg - Deutsche Bank
Gerry, you’ve shown very impressive string of revenues. But in 2016 it looks like you might have a little bit of a gap with Glumetza and Zegerid exiting the market or being undersized. What are you doing to try to fill that gap? Should we expect some acquisition or in-licensing either building of your cash? And how can this story you can keep the revenues relatively smooth or should we expect a dividend and then further growth from that?
So a couple of things to affect the revenue growth, particularly in the 2016 timeframe. As I mentioned we continue to look to expanding indications of our current products. If you look at Uceris for example microscopic colitis, there are about 300 to 350,000 patients in the US of microscopic colitis. Not only will we look at it in acute treatment, but we also plan on looking at prophylactic treatment for microscopic colitis. That could increase the market opportunity for Uceris substantially and help us accelerate growth in that timeframe. With regards to Ruconest, obviously we’ve looking at prophylactic treatment. That would substantially increase the market opportunity for Ruconest. And if we demonstrate either efficacy of Ruconest in acute pancreatitis which there are no treatments currently, that would substantially improve the marketplace for Ruconest. We are continuing to look to bring in additional products. As I mentioned we’re focused in the endocrinology and gastroenterology area and we do expect to continue to licensing products to drive revenues in that timeframe.
Dave Steinberg - Deutsche Bank
Okay. Any more questions? Okay, thank you very much.
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