Santarus Inc. (SNTS) recently announced the launch of the over-the-counter [OTC] version of its flagship product, Zegerid. OTC Zegerid is being promoted in North America by Merck's (MRK) consumer Care Products Inc.
The product gained approval from the US Food and Drug Administration [FDA] on December 1, 2009. The OTC version has been developed under Santarus’ agreement with Merck whereby Merck gained exclusive rights for the development, manufacture and sale of Zegerid OTC products in the US and Canada.
The OTC version received approval from the FDA for OTC treatment of frequent heartburn. Zegerid is Santarus’ lead product. Santarus markets the Zegerid family of products, which are proprietary immediate-release formulations that combine omeprazole (Prilosec), a PPI, and one or more antacids.
Zegerid is approved by the FDA for the treatment or reduction of the risk of several upper gastrointestinal diseases and disorders. It is already marketed as capsule and powder for oral suspension dosage forms.
The launch of the OTC version is a major positive for Santarus. Over and above a $20 million milestone payment received from Merck, Santarus could also receive up to $37.5 million in sales milestone payments along with low double-digit royalty on net sales. Santarus should start recognizing royalty revenues from the first quarter of 2010.
In addition to ensuring a steady source of revenue for Santarus in the form of milestone payments and royalties on sales, the launch of the OTC version in the $1.8 billion OTC market will also help increase awareness of the Zegerid brand of products.
We currently have a Neutral recommendation on Santarus. Zegerid has captured a nice share of the gastroesophageal reflux disease [GERD] market, and the company has good upside potential with the product through partnerships with GlaxoSmithKline (GSK) Norgine and Merck.
The launch of the tablet and OTC formulations in 2010 as well as the launch of Zegerid in Europe by EU partner GlaxoSmithKline present positive catalysts for the company. In the long term, we like the position of the company, especially if Santarus can hold on to Zegerid until either budesonide or rifamycin − or both− gets on the market.
However, the active patent challenge from Par Pharmaceuticals (PRX) on Zegerid looms large. An unfavorable ruling in the patent infringement case would be devastating as the company depends on the drug for growth. The outcome of active patent challenges is difficult to predict and we expect investor focus to remain on this issue going forward.