Santarus' CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: Santarus, Inc. (SNTS)

Santarus, Inc. (NASDAQ:SNTS)

Q2 2013 Earnings Conference Call

August 6, 2013 04:30 pm ET

Executives

Martha Hough – Vice President-Finance and Investor Relations

Gerald T. Proehl – President and Chief Executive Officer

Debra P. Crawford – Senior Vice President, Chief Financial Officer, Treasurer and Secretary

William C. Denby, III – Senior Vice President, Commercial Operations

Wendell Wierenga – Executive Vice President-Research and Development

Analysts

Scott R. Henry – ROTH Capital Partners, LLC

Jason M. Gerberry – Leerink Swann LLC

John L. Newman – JMP Securities LLC

Traver A. Davis – Piper Jaffray, Inc.

Josh J. Riegelhaupt – Stifel Nicolaus

Operator

Good afternoon. My name is Sara and I will be your conference operator today.

At this time, I would like to welcome everyone to the Santarus’ Second Quarter 2013 Financial Results Call. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Martha Hough, you may begin your conference.

Martha Hough

Thank you, Sara. 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 and Chief Financial Officer; Bill Denby, Senior Vice President of Commercial Operations; and Dr. Wendell Wierenga, Executive Vice President of Research and Development.

Earlier today, Santarus issued a press release announcing our second quarter 2013 financial results, which is available on our website at www.santarus.com. We will also make a replay of this call available for the next two weeks on the Investor Relations section of our website.

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 by management 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, on August 6, 2013, Santarus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

In this call, when talking about our Company's performance and financial outlook, we will also discuss adjusted earnings and diluted adjusted earnings per share, which are non-GAAP financial measures. You can find the reconciliation of non-GAAP adjusted earnings to GAAP net income in our press release issued this afternoon.

I'll now turn the call over to Gerry Proehl.

Gerald T. Proehl

Thank you, Martha, and welcome to everyone to this afternoon's call. During the second quarter, a positive momentum continued. We are pleased to announce another quarter of strong financial results for Santarus.

Today we reported total revenues of $89.4 million, up 89% over the second quarter of 2012. Our net income increased substantially over the prior year period, and exceeded analysts’ expectations. Even before the favorable impact of the release of valuation allowance relating to our deferred tax assets.

Significant increase in net sales of GLUMETZA and ZEGERID along with favorable uptake of UCERIS drove revenues higher compared with prior year period.

I would like to highlight that net sales of UCERIS came in at $16.2 million for the quarter, which was the second quarter commercial launch, and the first full quarter on the market. Our expectations for continued significant contributions from GLUMETZA, ZEGERID, and UCERIS has led us to raise our 2013 financial outlook.

We increased our guidance from total revenues to a range of $355 million to $360 million, an increase of $20 million to $25 million over our prior estimates. We are also raising net income and adjusted earnings guidance.

Debbie Crawford, will discuss our financial outlook in more detail next in her financial review. Our confidence in raising our financial outlook for the year is based on the strong performance of our commercial product portfolio, including encouraging market uptake for the UCERIS commercial launch. Information about UCERIS was positively received by gastroenterologists at the Digestive Disease Week Meeting in May. DDW was the first major gastroenterology meeting to take place since we began promoting UCERIS in February of this year.

As anticipated, an analysis of sale call frequency and prescription date indicates that UCERIS is very promotionally sensitive. As a result of this observation and the strong uptake we’ve seen so far, we have decided to add approximately 25 sales representatives to our sales force to increase the frequency of promotion for UCERIS in our other products.

We believe the impact of these additional sales efforts will be incrementally positive for sales trends starting in 2014. We expect to have the new sales representatives in place by the fourth quarter of this year. We continue to execute on our growth plans for the Company by successfully promoting our current commercial products, investigating potential, new indications for UCERIS, and RUCONEST, advancing the clinical development of rifamycin SV MMX and SAN-300, and seeking business development opportunities that makes strategic sense for the Company.

That completes my overview and I’ll now turn the call over to Debbie Crawford. Debb?

Debra P. Crawford

Thank you, Gerry, and I’d like to add my welcome to investors joining the call.

As Gerry indicated, we had another quarter of strong financial performance. Total revenues for the second quarter of 2013 grew approximately 89% from the prior year period to $89.4 million, led again this quarter by substantial increases in net sales of GLUMETZA and ZEGERID, and revenue from the launch of UCERIS.

Non-GAAP adjusted earnings for the second quarter of 2013 were $24.3 million, and diluted non-GAAP adjusted EPS were $0.31, compared with non-GAAP adjusted earnings of $7.1 million and diluted non-GAAP adjusted EPS of $0.10 in the second quarter of 2012.

Net income in the 2013 second quarter was $73.5 million, and diluted EPS was $0.94 compared with net income of $3.4 million in the second quarter of 2012, and diluted EPS of $0.05. Net income and diluted EPS in the quarter included a $5 million expense for a success-based milestone associated with the FDA’s acceptance for review of the RUCONEST BLA, and a $54.9 million income tax benefit resulting from the release of a valuation allowance relating to our deferred tax assets.

Our deferred tax assets are generally comprised of the future tax benefit from net operating losses or NOLs, R&D credits, and timing differences between book and tax deductions. Since the Company’s inception, these deferred tax assets have been fully reserved due to the uncertainty associated with our ability to fully realize their benefit. At June 30, 2013, we concluded that it was more likely than not, that all of our deferred tax assets would be realized through future taxable income, and we released the valuation allowance. This conclusion was based on our sustained profitability for 2011, 2012, and the six months ended June 30, 2013, and assessment of sales trends for each of our products including UCERIS, and projections of positive future earnings. The release of the valuation allowance resulted in a one-time income tax benefit of $54.9 million in the second quarter of 2013.

Keep in mind that the release of the valuation allowance will not affect the amount of cash paid for income taxes. Net product sales in the second quarter of 2013 totaled $88.5 million with individual product breakouts as follows; GLUMETZA net sales increased 39% to $44.4 million. In the prior-year period, GLUMETZA net sales were $31.9 million.

ZEGERID brand and authorized generic product sales were up 110% to $21.6 million compared with $10.3 million in the second quarter of 2012. The increase in sales reflects higher prescription volume and pricing for the ZEGERID authorized generic, which is now a single source generic product.

UCERIS net sales were $16.2 million for the second quarter, an increase of $9.6 million of UCERIS net sales in the first quarter of 2013. UCERIS was commercially launched in mid-February of this year.

CYCLOSET net sales were $4.3 million, growing 120%, compared with $2 million in the prior year period. And FENOGLIDE net sales were $2 million relatively flat compared to the prior year period.

2013 second quarter expenses for license fees and royalties were $25 million, an increase of $12.6 million over the prior year period. The increase was primarily a result of royalties payable on increased net sales of GLUMETZA and ZEGERID as well as royalties on net sales of UCERIS, and a $5 million regulatory milestone expense associated with the FDA acceptance for review of the RUCONEST BLA.

Second quarter 2013 R&D expenses were $6.6 million, compared with $6.7 million for the prior year period. SG&A expenses were approximately $33.5 million in the second quarter of 2013, an increase of approximately $12.9 million from the second quarter of 2012. The higher spending reflects costs associated with the expansion of our commercial presence, including the addition of 85 sales representatives in the first quarter of 2013.

Expenses related to UCERIS launch and ZEGERID relaunch and an increase on stock-based compensation resulting from an increase in the price of the Company’s stock.

As of June 30, 2013 we had cash, cash equivalents in short-term investments of $142.7 million, an increase of $48 million during the six months ended June 30, 2013. The June 30, 2013 cash balance reflected the payment of a $7 million milestone to Cosmo Technologies in April 2013, for this first commercial sale of UCERIS.

As Gerry mentioned today we are raising our outlook for 2013 based on our strong second quarter performance.

Our new estimates; our total revenues were approximately $365 million to $360 million, non-GAAP adjusted earnings of approximately $97 million to $101 million, diluted non-GAAP adjusted EPS of approximately $1.21 to $1.26, net income of approximately $129 million to $132 million and diluted EPS of approximately $1.61 to $1.65.

We are assuming 80 million shares for the fully diluted EPS calculation, up from our prior estimate of 79 million shares. The increase in this entire stock price has resulted in additional in-the-money stock option, which leads to a higher estimated fully diluted average share count for the year.

Additional details on selected estimated expenses for 2013 are as follows; we expect R&D expenses to come in at the lower end of our previous range at approximately $34 million, and an increase in SG&A expenses to approximately $138 million, reflecting costs associated with the expansion of our sales force in investment and pre-launch activities RUCONEST.

Bill Denby will now give a brief overview of commercial operations.

William C. Denby, III

Thanks Debbie. Our commercial efforts with UCERIS have produced excellent results since sales promotion began in mid-February. We continue to see strong physician interest in prescribing UCERIS for their patients with active, mild to moderate ulcerative colitis. In addition, the feedback from gastroenterologists on the positive impact of treatment of UCERIS on their patients with active disease is encouraging. Based on the success we’ve seen today with the UCERIS launch and data which indicate that sales are highly sensitive to promotion. We are planning to increase our promotional efforts by adding 25 sales representatives by the 2013 fourth quarter. This modest sales force expansion will help increase frequency of sales calls across all of our products.

We have learned from our past experience in launching new pharmaceutical products, that putting sales representatives in smaller geographies and mirroring sales reps in higher potential territories allows for higher call frequency and better access to our key position, which are essential for creating awareness and driving product uptake.

All of our current sales force have approximately 235 representatives could not promote UCERIS and ZEGERID primarily to gastroenterologists. They are also promoting GLUMETZA, CYCLOSET, and FENOGLIDE to endocrinologists, and high prescribing physicians who treat patients with type 2 diabetes, and high cholesterol.

Using the entire sales force to promote all our products has allowed us to reduce the size of our larger territories, and mirror more of our smaller more productive territories. UCERIS uptake has been driven by robust mix of sales representative promotion, educational programs, advertising, Internet outreach, and other marketing programs.

Through the end of June more than 3,500 physicians have prescribed UCERIS at least one time, a number that has doubled since mid-April. As of the week of July 19, they were approximately 500 weekly prescribers of UCERIS, with each physician writing approximately two prescriptions per week. AS we continue to invest in the promotion of UCERIS, we expect the number of prescribing gastroenterologists increased along with the number of monthly prescriptions that they write.

Managed care continues to be generally receptive and support of the making UCERIS acceptable and available to patients. Plans often place restrictions on new products as they complete their formulary reviews. During this review period, the most commercial health plans that made UCERIS available on third tier with some restrictions. Over the coming months this health plans complete their initial formulary reviews. We expect the higher percentage of UCERIS commercial claims to be approved with fewer restrictions.

We continue to negotiate with Medicare Part D plans to include UCERIS on their 2014 formularies, and in some cases for their 2013 formularies as well. During this process, most Part D plans are making this service available as of third tier benefit, again with some restrictions. In May for example, Part D plans are putting over 75% of initial UCERIS claims.

As negotiations and formulary reviews progress, we expect to improve access to UCERIS, especially on Part D plans. In addition to seeing success with our promotional activities to physicians and pharmacists, we are also seeing progress with our direct-patient campaign for UCERIS. The goal of this campaign is to increase patient awareness of UCERIS and motivate patients to visit their physicians to learn more.

Our direct patient activities include advertising on social media outlets and other key medical information websites. Results to-date from these activities have been encouraging. Since launch, we had over 80,000 visits to uceris.com website. And I would say although there has been some softening in UCERIS prescription in recent weeks, we believe this is attributable to temporary factors that should soon resolve or improve.

In addition to typical seasonal summer transfer prescriptions, we’ve experienced a reduction of approximately 20% to 25% in sales rep driven promotion, in June and July as a result of sales reps being out of the field for training, sales meetings and to a lesser extent vacations. We expect to return to full levels of sales rep promotion by summer then and also we expect to improve patient access through our managed care contracting at the same time period.

In the second quarter, we also had solid performance from ZEGERID and from our base business GLUMETZA, CYCLOSET, and FENOGLIDE. ZEGERID prescription volume for the total molecule has declined since generic competition entered the market in mid-2010. The initial goal of relaunching ZEGERID promotion was to make physicians aware of positive clinical attributes of ZEGERID, and stop the decline in prescriptions for the franchise. We believe we’re seeing progress in this regard with total prescriptions for the brand and authorize generic products stable from the first quarter to the second quarter at approximately 93,000 prescriptions.

GLUMETZA continues to be a solid performer and a significant contributor to our financial performance. We believe that GLUMETZA’s growth is based on its attractive clinical profile for patients with type 2 diabetes, who experienced dose-limiting GI side effects with generic and pharma products. GLUMETZA totaled prescriptions increased 13% in the second quarter versus the prior year quarter and recent growth trends for GLUMETZA have been encouraging.

We believe there are substantial or continued growth for GLUMETZA since its share of total metformin market is less than 1%. We believe we’re meeting or exceeding our commercial goals to successfully launch UCERIS, stop the decline of ZEGERID prescriptions and continue to grow our base business.

Next, Wendell Wierenga will discuss our clinical programs.

Wendell Wierenga

Thanks, Bill. We have a number of promising clinical programs in the planning stage that offer the potential to expand the indications of our existing product portfolio and advance our monoclonal antibody, SAN-300. With the goal of expanding indications for UCERIS and RUCONEST, we are on track to file four investigational new drug applications in the second half of 2013 and to initiate new clinical studies over the next 12 months. We are also on track to file additional IND to begin a Phase IIa study with SAN-300 in rheumatoid arthritis by the end of this year.

The commercial launch of UCERIS for the treatment of acute ulcerative colitis is well underway and we’ve now turned our attention to two clinical programs with UCERIS that we expect to initiate in 2014. One is a pediatric Phase III study with UCERIS. We believe there are approximately 50,000 to 60,000 pediatric patients with ulcerative colitis in the U.S., which qualifies the indication for orphan designation. We expect to meet with the FDA in the coming months to reach agreement on a protocol to investigate UCERIS from the induction of remission of active mild to moderate ulcerative colitis in patients of five years to 17 years of age.

The second UCERIS program will be focused on microscopic colitis, which we believe offers the potential for label expansion. The prevalence of this disease in the U.S. is about half of that of ulcerative colitis serve about 300,000 to 350,000 patients. Microscopic colitis is an inflammation of the colon and more typically occurs in patients over 50 years of age. It is a condition that affects women more often than men, with symptoms that include frequent watery stools and abdominal pain. There are no drugs currently approved to treat microscopic colitis in the U.S.

We have requested a meeting with the FDA to propose a clinical program to investigate UCERIS from induction of remission and maintenance of remission of microscopic colitis with the goal of initiating this program in 2014. We also have completed enrollment of our CONTRIBUTE study with UCERIS as add on to 5-ASA therapy for the induction of remission of ulcerative colitis and expect to report top line data by the end of this year, early next year. We believe these data will provide valuable information for physicians who treat patients with active ulcerative colitis.

Turning now to RUCONEST, we and our partner Pharming achieved a significant regulatory milestone in June when the BLA for RUCONEST for the treatment of acute attacks of angioedema in patients with HAE was accepted for review by the FDA with an action date on April 2014.

We’ve also requested separate meetings with the FDA to discuss the pathways for other potential indications of RUCONEST, such as the treatment of acute pancreatitis and the prophylaxis treatment of HAE.

With regard to rifamycin SV MMX, we are pleased to announce that Dr. Falk Pharma has recently received approval from the Indian regulatory authorities to begin enrolling an additional 250 patients in the Phase III clinical study probably being conducted in India. Once patient enrollment has been reinitiated we will be able to provide an estimate for the timing of study completion and the availability of top line data.

Our SAN-300, our monoclonal antibody, which we plan to initially develop for both rheumatoid arthritis and inflammatory bowel disease, we have held a pre-IND meeting with the FDA to discuss a Phase IIa clinical study with a subcutaneous dosage formulation to evaluate safety, the efficacy parameters, and PK/PD and patients with rheumatoid arthritis, and are moving forward to submit an IND in the coming weeks.

We’re excited about the number of interesting protocol opportunities that may exist for UCERIS, and our pipeline products. We will look forward to keeping you apprised of our progress.

I’ll now turn the call back to Gerry for his concluding comments.

Gerald T. Proehl

Thanks, Wendell. In closing, we believe that this is proving to be a transformational year for Santarus. Based on the strong financial performance in the first half of the year we have once again raised our financial outlook for 2013. We expect continued strong uptick for UCERIS aided by return to fully step sales rep promotion and tailwinds from improved patient access from managed care contracting.

We are also beginning to plan clinical studies for two potential additional indications that if approved could substantially increase the peak sales potential for UCERIS. We have an April 2014 PDUFA date for RUCONEST and are advancing our plans for the launch of this product, as well as pursuing additional indications in HAE prophylaxis and acute pancreatitis, and we are moving forward SAN-300 in a subcutaneous dosage form and plan to initiate a Phase IIa clinical study in patients with rheumatoid arthritis later this year.

We are executing on our strategy to maximize the value of our existing portfolio and continuing to seek new marketed or late-stage development products through license or acquisition. We’re also focusing on assessing potential acquisitions of smaller companies that would be a good strategic fit for Santarus.

I’d now like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions)

Martha Hough

This is Martha Hough. While we’re waiting for those questions, I’d like to mention a couple of investment conferences in September that we’ll be presenting at. We will be at the Morgan Stanley Global Healthcare Unplugged Conference in New York City on September 10 and we’ll be at the Stifel Nicolaus Healthcare Conference in Boston on September 11. Okay, Sara, do we have some questions?

Operator

We do. Our first question is from the line of Scott Henry with ROTH Capital. Your line is open.

Scott R. Henry – ROTH Capital Partners, LLC

Thank you and congratulations on the strong results. Gerry, could you talk a little bit about, first of all, any stocking? When we look at the UCERIS number, it was a little stronger than I would have expected on revenue per script. Should revenue per script be higher or was there some stocking in that number?

Gerald T. Proehl

Scott, it’s Gerry. I would say with a launch product like UCERIS, as we mentioned, when we launched the product, we really only stocked the wholesalers. We didn’t push any product out to retail pharmacies. So, I think what you’re seeing is pretty typical of a launch product is the retails are really trying to catch up to the prescription trend. So when they get a prescription coming into their retail pharmacy, they typically will order a couple of bottles, one bottle to fill the prescription and a second bottle to fill a future prescription. So, we’re probably seeing some typical retail stocking that you would expect with the launch product, but nothing out of the ordinary.

Scott R. Henry – ROTH Capital Partners, LLC

Okay. And maybe putting it in another way, when you think about revenue per script for the typical prescription, I mean, this would imply an amount approaching, I think $1,400, or at least $1,300. Where would you expect it to be? I mean, maybe not all the way there, but it looks like it’s higher than $900, which is kind of where I thought it would be going into this. Any comments around that?

Debra P. Crawford

Scott, this is Debbie. I think if you look at our WAC price, we’re in the $1,235 per month range, and I think it’s fair to assume there would be typical growth to net deductions off of that price. So I think it’s best to think about script value in that context, but then to add to Gerry’s comments to think that wholesalers are probably holding two weeks of demand at any point time, and then as the script trends continue to grow, we would expect to see more and more pharmacies stocking the product. So, right now I don’t think there is a huge amount in stocking, but it might equate to a month and a half or so of demand given those dynamics.

Scott R. Henry – ROTH Capital Partners, LLC

Okay. And then, a question with regards to UCERIS being highly promotionally sensitive. Obviously, you have a lot better data than we do in terms of specific doctors. But my question is, do you expect the product to get stickier as time goes on? Meaning, when you see the drop off, the promotional sensitive drop off, is it from new physicians or is it some of the current writers? Just wondering how should we think about stickiness going forward on that demand?

William C. Denby, III

Hi, this is Bill Denby. I think it’s hard to differentiate those two segments. It probably affects both. People need to be aware of the product and they need to be aware of it in a way that without the rep, unaided awareness we call it, so that from one day or one week to the next, they write the product on a consistent basis. That’s the reason for the promotional sensitivity of the product. I would say that some of the marketing research that we’ve been doing is very, very encouraging. In the marketing research, current UCERIS writers say they’re extremely likely to write UCERIS next 30 days, 63% for newly diagnosed patients and 87% for 5-ASA failures. Most encouraging perhaps is of 33% of the docs who have not written UCERIS say they are extremely likely to write it in the next 30 days. So we’re seeing very encouraging earmarks from the marketing research we’ve done with doctors. We just need to make sure they know, they’re aware, and they are consistently aware about the product.

Gerald T Proehl

Yes. this is Gerry. Just to add to what Bill is saying, I think as you would expect, as they write more prescriptions, they would start to develop a habit of writing UCERIS. Right now, they are just right now starting to develop their habit. And then so I do think it will get, quote, stickier for the physicians, because it will become more of a habit to go ahead and reach for the prescription pad and write UCERIS versus writing let’s say prednisone for their patients. And once it becomes a habit, then you’ll see that happen more frequently.

Scott R. Henry – ROTH Capital Partners, LLC

Okay, great and thanks for the color. Final question, when we start thinking about 2014, Debra, any thoughts where we should be modeling in the tax rate given all of the recent developments?

Debra P. Crawford

Yeah, I think it’s fair to say in 2014 we should be thinking about statutory tax rates given that we are a U.S. based company. So, for us federal is at 35% and then you have to add on the state impact and various other permanent differences. So, I think 38% to 42% is probably a reasonable range on the tax rate.

Scott R. Henry – ROTH Capital Partners, LLC

Okay, thank you and thank you for taking the questions.

Gerald T Proehl

Thanks, Scott.

Operator

Your next question comes from the line of Jason Gerberry with Leerink Swann. Your line is open.

Jason M. Gerberry – Leerink Swann LLC

Hi, good evening. Congratulations on the quarter. A couple of more UCERIS questions. I noticed last quarter you talked about potential for some Part D plans to make an earlier than expected – possibly an earlier than expected determination on coverage. Just kind of wondering where things stand there. Also it looks like the appreciation or understanding of UCERIS is something that’s evolving, and lent itself to adding sales reps. So just kind of curious when making that decision to add more reps, do you have an outlook that maybe you can achieve more than $300 million peak sales with this product?

Gerald T. Proehl

Well, I think adding the reps is an obvious to me effort to try and form -- throw more logs on the fire, while the products defining it’s upward slope. And so, I’m not sure I can comment on the sales number. We’re hopeful that this product really becomes very significant for us.

In terms of Part D, we’re very encouraged by the negotiations we have with them. Most healthcare plans are slow to react to new products. So, it’s taken some time, but we hope that we have some breakthrough with some of the major Part D plans here for the close of the year.

Jason M. Gerberry – Leerink Swann LLC

Okay. And then, if I could just ask a follow-up. As we think about the franchise beyond 2020 when the Orange Book patent expires, just kind of curious, if you can provide your latest thought in terms of should we be thinking about the regulatory barriers as the primary barriers to entry for generics, and is this an area where you’re looking at M&A as a potential avenue for lifecycle expansion?

Gerald T Proehl

Jason, this is Gerry. I think as you’re well aware in this particular space, when you’re dealing with products that are delivered to the colon, it’s much more difficult to demonstrate bioequivalence on those types of products. With UCERIS we use an MMX technology, it has a PH coding, but it has a multi-matrix system that as it starts to take on fluids, it starts to leach out the product over a 24-hour period. I think added to the difficultly is, we are talking about a 9 milligram dose that’s absorbed at about 10%.

So it just makes it a difficult process. It doesn’t mean that a generic can’t figure out a way, there are very smart companies and there are good formulators. But certainly, we think that there is some additional work that needs to done in order to demonstrate that their product would be equivalent to Santarus not only from a bioequivalent but also from an efficacy standpoint, and we put that all into our citizen’s petition which we filed back right after we got approval of the product.

Jason M. Gerberry – Leerink Swann LLC

Okay, thanks.

Operator

Your next question comes from the line of John Newman with JMP Securities. Your line is open.

John L. Newman – JMP Securities LLC

Hi guys, thanks for taking the question. I just wondered -- in the pediatric study that you described for UCERIS, I wondered if you would have the opportunity to test a lower dose of the drug there. And then, I also have a follow-up question on RUCONEST?

Wendell Wierenga

John, this is Wendell, certainly that’s in our plans just to be testing more than one dose in the pediatric study that we’ll be discussing shortly with FDA, and I might add, we will be looking at more than one dose as well in microscopic colitis as we advance that program as well.

John L. Newman – JMP Securities LLC

Great, thanks. And then, on RUCONEST, can you talk a little bit about how you think about the potential in HAE, and the reason why I ask is because it seems that you are one of the few companies in this space that has a very interesting profile in the GI space, but also the opportunity to really push forward with the biologics, and I am just curious how do you think about the opportunity in acute HAE and what are the types of things that you will be looking for from the agency when you talk to them about a prophylactic study?

Gerald T. Proehl

So this is Gerry, John as it relates to acute HAE. We do think that RUCONEST is really a best-in-class product. When you’re treating patients with hereditary angioedema this is really replacement therapy obviously we have a C1 esterase inhibitor, and we were replacing difference then a couple of the other products out there are just recombinant product which has inherent safeties to it.

So we think the combination of the safety and efficacy of the product will become apparent once it’s on the market. In addition, as we mentioned before we delivered 50 units per kilogram C1 esterase inhibitor which is significantly more than any of the competitive products in that space.

So we think there are a lot of reasons for this product going to do well in acute treatment. Certainly, we need to get on to the market place and demonstrate that.

We did recently actually talk with a company that had been involved with the hemophilia space back in the days when HIV was just discovered and certainly what you saw in that market place is almost all of the patients move to recombinant products.

Now that was 30 years ago and may be things have changed, but we think that the inherent safety of recombinant product is important to patient and there will be patients that will want to move to recombinant products if they can get the same efficacy but also enjoy the safety of recombinant H1 or C1 inhibitor.

William C. Denby III

John, if I could just add a couple more points to what you were saying I mean certain the purity and safety then associated with a very pure protein is, I think important in the long-term.

Gerry also commented on the high efficacy, but also and we have the supply advantage here, I think relative to plasma drive proteins, and we are going to leverage that not only in seeking out prophylaxis, which is on our agenda in the very near term, but also looking at other indications such as acute pancreatitis which I mentioned just lastly to underscore the safety side, we have had no evidences of our entire safety which includes a long term treatment of the patients of probable and molecule events. So we think this more of a just recombinant as a terminology here then the scores .

I think the prophylaxis is a very reasonable and good opportunity for us not only for those reasons, but also the data out there suggest that it’s not half life, that said all important in either of the acute treatment or in prophylactic treatment. But in fact Cmax and dose really matters. So we think we have a very good theoretical rationale for advancing it in the prophylactic service.

John L. Newman – JMP Securities LLC

Great. Thank you very much for answering all the questions. Thanks John.

Operator

Your next question comes from the line of David Amsellem with Piper Jaffray. Your line is open.

Traver A. Davis – Piper Jaffray, Inc.

Hi guys, this is Traver Davis on for David. Thanks for taking the questions. So just first, can you give us a sense from your market research of how much usage of UCERIS that you're seeing as a maintenance therapy? And also how much of the current usage do you know is in combination with 5-ASA? Thanks.

William C. Denby III

Well the first question I’m not sure we haven’t really differentiated between acute and people that might be using it to maintain their patients, the drugs indicated for acute use so that’s primarily where we think it’s being used. That’s a good question. I think from the standpoint of continued use we’ve only have 3,500 doctors right thus far and we have 8,500 gastroenterologists, so we this good potential there.

Gerald T. Proehl

And this is Gerry, as it relates to use with 5-ASAs, what our market ratios would indicate is probably about two-thirds of the time it’s being used in combination with 5-ASA versus being used about third a time as initial therapy. Now when we say initial therapy that could be started on patients just on UCERIS or could be starting the patient UCERIS along side a 5-ASA, but you can assume that many patients that are being put on UCERIS are probably also on a 5-ASA are being put on a 5-ASA once their flare is under control, the position likely will titrate them off UCERIS and maintain them on the background 5-ASA.

Traver A. Davis – Piper Jaffray, Inc.

Got you, that’s helpful, And just switching gears, so with the growing cash balance, can you talk about how you're thinking about business development and what's the likelihood that something happening gets more near term than anything else? And then second, what kind of commercial stays assets are you looking at? Are you exploring any transactions that could help manage down the tax rate, which as we see now, is probably going to start increasing with the profitability you guys are generating now? Thanks.

Gerald T. Proehl

This is Gerry again. I would say that the things that we are focused on right now from the standpoint of using our cash would be looking for assets that can help fill our 2016 revenue gap. We’ve talked about ZEGERID and GLUMETZA going off patent in 2016. So we are very focused on products that could be on the market in delivering revenue by 2016. That could be either marketed products or late-stage development products.

As Deb mentioned, we’ll become a U.S. corporate tax payer in 2014 with a 38% to 42% tax rate. So we’re starting to look at that and certainly exploring different options that we could pursue that could potentially down the road reduce our tax rate. As it relates to timing, we never give timing on any type of transaction. When they happen and once it’s signed on the dotted line, we announce it, but until that time, we’ll continue to focus on trying to execute.

Traver A. Davis – Piper Jaffray, Inc.

Okay, thanks a lot.

Operator

(Operator Instructions) Your next question comes from the line of Annabel Samimy with Stifel. Your line is open.

Josh J. Riegelhaupt – Stifel Nicolaus

Hi, guys. This is Josh Riegelhaupt sitting in for Annabel. Can you guys comment a little bit on UCERIS, what percentage of it is coming from mail order and how that’s growing?

Gerald T Proehl

This is Gerry. It’s probably around 9% mail order. We’re seeing it grow month over month. I wouldn’t say it’s growing rapidly, but certainly over the last two months, three months we’ve seen it grow from about 4%, 5% to about 9%.

Josh J. Riegelhaupt – Stifel Nicolaus

Okay. And initial follow-up, have you guys been getting any – have you gotten any notifications for a Paragraph IV on UCERIS?

Gerald T Proehl

No.

Josh J. Riegelhaupt – Stifel Nicolaus

No. And one final one. In terms of early titration on UCERIS, we know towards the six week to eight week mark, are you noticing any kind of flattening out where patients start to take less of the drug?

Gerald T. Proehl

I don’t know that we would have that kind of data. I would say, our biggest concern actually has to do with the outstanding efficacy of UCERIS. When we’ve done market research with physicians, they are seeing in fact with many of their patients in two week or three week timeframe. And so, one of the things that we’re continuing to reinforce sales representatives is to make sure that the physician understands that they really want to keep the patient on for the eight week course of therapy to make sure they get complete healing of the gastric mucosa and not just symptom relief. So that’s an important message that what we continue to deliver to physicians.

Josh J. Riegelhaupt – Stifel Nicolaus

Okay, great. Thanks, guys.

Operator

And we have no further questions at this time. I’d turn the call back over to the presenters.

Gerald T. Proehl

Thank you. I would like to thank you for your interest in Santarus and for joining us on today’s call. If you have any further questions, please feel free to call Debbie, Martha or myself. Thank you. Bye.

Operator

This concludes today’s conference call. You may now disconnect.

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