Executives
Martha Hough - VP, Finance and IR
Gerry Proehl - President and CEO
Debbie Crawford - SVP and CFO
Bill Denby - SVP of Commercial Operations
Analysts
Annabel Samimy - Thomas Weisel
Scott Henry - Roth Capital
David Amsellem - Piper Jaffrey
Ian Sanderson - Cowen and Company
Santarus Inc. (SNTS) Q1 2010 Earnings Call April 6, 2010 5:00 PM ET
Operator
Welcome to the Santarus first quarter 2010 financial results conference call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded May 6, 2010.
I would now like to turn the conference over to Ms. Martha Hough. Please go ahead, ma’am.
Martha Hough
Thank you, Marvin. 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; and Bill Denby, Senior Vice President - Commercial Operations; Dr. David Ballard, Senior Vice President - Clinical Research and Medical Affairs is attending the DDW meeting and will not be available for today’s call.
Earlier today, Santarus issued a press release announcing our first quarter 2010 financial results. If you have not received a copy of our earnings news release, you can access it on our website at www.santarus.com. A replay of this call also is available on our website and can be found in the Investor Relations section for the next two weeks.
For today’s call, 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 May 6, 2010. Santarus undertakes no obligation to revise or update any forward-looking statements to reflect the events or circumstances after the date of this conference call.
I’d now like to turn the call over to Gerry Proehl. Gerry?
Gerry Proehl
Thank you, Martha and welcome to this afternoon’s call. We’re pleased to report that our solid top line growth in expense management resulted a net income of $3.3 million for the first quarter making this our fifth consecutive quarter profitability. Product related revenues increased 18% compared with the prior year period driven by 95% increasing GLUMETZA promotion revenue and 5% increase in ZEGERID net sales.
We also are pleased to report our first royalty revenue from the launch of ZEGERID OTC. We believe our commercial organization has done an excellent job with GLUMETZA as reflected by 28% growth in GLUMETZA total prescription versus the first quarter of 2009 and the growth in our promotion revenue to $8.8 million from $4.5 million reported in a prior year period.
Bill will add more color to the factors is resulting improved product sales in the first quarter. It would be an understatement to say we were disappointed with the April 14th, Delaware District Court ruling and we disagreed with the court’s opinion that the ascertain patterns covering our ZEGERID products are invalid due to obviousness. In response to the court’s decision we plan to file an appeal with the US Court of Appeals for the federal focus and we expect the power position in approximately 12 to 18 months although the timing to be shorter or longer than we estimate. The appeal will be heard by a three-judge panel with the decision based on a majority ruling. We will continue to explore our actions on ZEGERID while at the same time preparing for a launch of a generic version of ZEGERID.
In the meantime we remain focused on positions into our forward success. We will continue to actively promote Glumetza work with Merck consumer care support the launch of ZEGERID OTC as well as a fixed GlaxoSmithKline and Norgine as they work to advance in development and launch of ZEGERID through out the world. We are also focused on completing the budesonide MMX phase III studies for induction of remission of mild or moderate active ulcerative colitis and initiating the third phase III trial for rifamycin SV MMX in the treatment of travelers’ diarrhea.
Moreover we remain focused on executing on our business development strategies to bring in marketed and development stage products that will further diversify our product portfolio and positions into our continued growth and success for many years into the future.
Now let me get to more specifics on each of these topics. With regard to our ZEGERID plans at the appropriate time we will take the size of input actions to restructure the organization and launching authorized generic of ZEGERID. However until this occurred as an organization we are focused on maximizing the value of ZEGERID and regardless of what happens in ZEGERID we will continue promote GLUMETZA which has been an excellent growth product for Santarus and continue to gain prescriptions and market share in a very large diabetes market. We’ve established GLUMETZA as the clear leader in the branded metformin market and we look forward to growing prescriptions in the future.
Now I’d like to update you on our strategic partnerships. Schering-Plough Consumer HealthCare now also known as Merck Consumer Care has recently initiated significant consumer advertising campaign for ZEGERID OTC and we believe they are committed to making ZEGERID OTC a successful OTC product. We are reporting our first royalty revenues from ZEGERID OTC filing product shipments that began in late March. Many of you maybe have already seen television ads and store this place by Merck Consumer Care.
Merck has also begun advertising recently announced positive top line results from a pharmacodynamic clinical study comparing ZEGERID OTC and Prevacid 24HR. These results indicate that ZEGERID OTC offers greater and faster acid control than Prevacid 24HR when the medicines are at full effect as measured on day seven, which is the halfway point in the recommended OTC course of treatment.
While acid control of an industry standard measured for acid reducing drugs, greater and faster acid control does not imply greater and faster heartburn symptom release. GlaxoSmithKline is continuing to work on additional regulatory submissions in Latin America and maybe Eastern Africa under our ex-US licensing agreement. We previously announced as of the end of 2009, GSK had submitted for regulatory approval in Mexico, Brazil, Ecuador, Columbia, Kenya and Uganda.
GSK also submitted a clinical trial application in China which is similar to an IND application in the US and plans to initiate clinical studies there. Santarus will receive tiered royalties from the mid-teens to the mid-twenties on net sales of any licensed product sold by GSK.
We believe this agreement will potentially provide future royalty revenue from a high-growth emerging market. According to IMS data, the markets covered under our license agreement with GSK had PPI sales of approximately $2.8 billion for the 12 months ending September 30, 2009 and had grown 22% over the prior 12 months.
Norgine is continuing to explore the most efficient and effective way to bring ZEGERID to the European market. We will update you as they make further progress of their clinical and regulatory strategies for ZEGERID in Europe.
Turing to our clinical program, in late March, we completed enrollment in the second Phase III clinical study for the budesonide MMX for induction and remission of mild or moderate active ulcerative colitis.
Late last year, we announced the completion of enrollment in the first Phase III study. We’re making good progress in data clean-up and we now expect to announce top-line results from both of the Phase III studies in the July-August timeframe. Given the proximity of completion of data clean-up from the two studies, we planned to un-blind the data concurrently, so that we can analyze the data from both studies simultaneously. While we are completing data clean-up for the induction phase of the Phase III trials, we are also continuing to monitor patients involved in the extension portion of our budesonide MMX trial.
Assuming a positive outcome, we expect to submit the NDA during the second half of 2011. We believe budesonide MMX will be the first steroid approved for the induction remission of mild or moderate ulcerative colitis with peak sales potential in the US of $150 million to $250 million.
With regard to rifamycin SV MMX phase III trial in travelers’ diarrhea we have received approval from the Ministry of Health in Guatemala and we expect patient enrollment to begin there within the next week. We are waiting for approval from the Ministry of Health in Mexico which we expect in June. We are also currently accessing additional indications to pursue rifamycin SV MMX and we expect to outline our plans during the second half of 2010.
Assuming the first phase III study for rifamycin SV MMX in travelers’ diarrhea is positive, we plan to initiate the second study during the first half of 2011. Assuming timely completion of the clinical studies required for FDA submission, we plan to submit an NDA in 2012. With approval rifamycin SV MMX will follow [Xifaxan] as another broad spectrum non-systemic antibiotic approved for use in travelers’ diarrhea. We believe that peak sales of rifamycin SV MMX in US could reach $50 million to $150 million.
Well, we are excited about the future launch opportunities and sales potential for budesonide MMX and rifamycin SV MMX in the gastro intestinal market. We are also actively evaluating other product opportunities for in-licensing or acquisition. We will continue to move forward with these evaluations, in order to further diversify our product portfolio and enhance future revenue growth for Santarus
Now I’ll turn the call over to Debbie Crawford, to discuss our financial performance. Deb
Debbie Crawford
Thank you, Gerry. I am pleased to report that our first quarter 2010 financial result were significantly better than our expectations for a loss which we had previously discussed in our financial outlook during our March 2010 conference call.
Total revenues for the first quarter of 2010 were $39.7 million up 14%, compared with $34.8 million in the prior year period. Product related revenue of $37.8 million increased 18% compared with the first quarter of 2009. Product related revenue for the 2010 quarter; included $29 million in ZEGERID net product sales and $8.8 million spend under our GLUMETZA promotion agreement.
Product related revenue for the 2009 first quarter of $32.1 million included $27.6 million in ZEGERID net product sales and $4.5 million current under our GLUMETZA promotion agreement.
Royalty revenues totaled $1.7 million for the first quarter of 2010 representing our royalties on ZEGERID OTC net product sale. As a reminder, we are in a low double digit royalty on ZEGERID OTC net sales. There was no royalty revenue in the first quarter of 2009. We reported an increase of 187% in net income to $3.3 million or $0.05 per diluted share for the first quarter of 2010 compared with net income of $1.2 million or $0.02 per diluted share for the first quarter of 2009.
The cost of product sales was $1.6 million in the first quarter of 2010 and $1.9 million in the first quarter of 2009 or approximately 5% and 7% of net product sales respectively. The decrease in cost-to-sales as a percentage of net product sales was primarily due to increased average selling prices.
Licensees and royalties of $3 million for the first quarter of 2010 consisted of royalties payable to the University of Missouri based on net product sales on prescription ZEGERID and ZEGERID OTC and amortization of the $12 million upfront fee paid to Depomed in July 2008. License fees and royalties were $1.8 million for the first quarter of 2009, which consisted of royalties payable to the University of Missouri based on products sales of prescription ZEGERID and amortization of the same Depomed fee.
Research and development expenses were $5 million for the first quarter of 2010, compared with $3.1 million for the first quarter of 2009. The $1.9 million increase in our R&D expenses was primarily due to the ongoing budesonide MMX Phase III clinical program. We are responsible for one half of the total out-of-pocket expenses associated with that program under our strategic coloration with Cosmo Technologies.
As of March 31, 2010, Santarus had cash, cash equivalents and short-term investments of $90.8 million, compared with $93.9 million as of December 31, 2009. The decrease of $3.1 million resulted from changes in operating assets and liabilities, offset in-part by the company’s net income adjusted for non-cash charges for the three months ended March 31, 2010.
For additional information, on our first quarter 2010 financial results, investors can make refer to our Form 10-Q which we expect to file with the SEC later this week.
Turning to our financial outlook, our 2010 financial results will be impacted substantially if a generic version of our ZEGERID prescription product is launched this year. Therefore we have updated our 2010 financial outlook.
We will continue to evaluate our options with ZEGERID while preparing a contingency plan in the event of the launch of a generic version of ZEGERID. Under our contingency plan, we expect to cease promotion of ZEGERID, restructure and reduce our commercial organization in other impacted operations, and focus our product promotion on GLUMETZA. At the time of a generic launch, we also plan to launch an authorized generic version of our ZEGERID prescription products.
We are continuing to pursue the development of our pipeline products and we expect research and development expenses for 2010 of up to $26 million, which includes expenses associated with the Phase III clinical programs for budesonide MMX and rifamycin SV MMX.
We may also incur license fee expenses from two success-based milestones totaling $6 million in 2010. If annual net product sales of GLUMETZA exceeds $50 million this year, then $3 million sales milestone is payable to Depomed. In addition, assuming the achievement of the primary endpoints in each of the two Phase III studies for budesonide MMX with statistical significance and demonstrated adequate safety, license fees will include a $3 million development milestone payable to Cosmo Technologies.
If generic versions of ZEGERID prescription products are launched, we believe we can be profitable in 2010, excluding one-time charges associated with the generic launch and organizational restructuring costs. We are continuing to assess the impact of the recent US healthcare reform legislation; however, at this time we do not believe that we’ll have a significant impact on our 2010 results.
I will now turn the call over to Bill Denby to provide an update on our commercial activities.
Bill Denby
Thanks, Deb. We are pleased with ZEGERID’s performance during the first quarter. Last year we announced that we are taking actions to modify or eliminate non-performing government and managed care contracts. This tax rate was aimed at improving ZEGERID’s average net selling prices, noting that it would have a negative impact on ZEGERID prescription volume. We are seeing positive results in 2010 from this strategy, ZEGERID net sales for the 2010 first quarter grew 5% compared with the prior year period, despite a 19% reduction in ZEGERID prescriptions.
We also are reporting another quarter of strong performance with GLUMETZA. Total GLUMETZA prescriptions for the 2010 first quarter were approximately $79,000 up 28% and GLUMETZA promotion revenue increased approximately 95% both compared with 2009 first quarter.
Several factors contributed to the quarter’s significant increase in GLUMETZA net sales to $12.5 million as recorded by Depomed, including increased volumes, price increases and a shift in product mix to the higher value 1000 milligram tablet. The 1000 milligram tablet constituted 26% of total prescriptions on the first quarter 2010 compared with 11% in the first quarter 2009.
In fact, looking at total scripts on 500 milligram tablet equivalent basis, total script growth was 46% over the prior period. We expect continued growth in GLUMETZA prescriptions and promotion revenue for 2010 even with an adjustment to our gross margin split from 80% to 75% which starts in 2010 fourth quarter. While the patent ruling on ZEGERID has created uncertainty in concern among our commercial organization, we have asked them to say focus on promoting both ZEGERID and GLUMETZA while we explore our options.
With that brief overview I will turn it back over to Gerry.
Gerry Proehl
Thanks Bill. We are focused on making the right decisions to work through our current issues and to taken action on the activities we control to support our goal of building Santarus into a premier specialty biopharmaceutical company. We are well positioned to move forward. We will continue to generate revenue from ZEGERID and protecting from an authorized generic while we take actions to address the impact of the court decision and file our appeal.
We expect continued growth in promotion of revenue from GLUMETZA. We are benefiting from our action to leverage our PPI technology. We are now receiving royalties from ZEGERID OTC and we have licensing agreement with strong partners in GSK and Norgine to help us maximize the value of our PPI technology in pharmaceutical markets outside the US without additional investment.
We are making progress as a clinical development of budesonide MMX and rifamycin SV MMX with the goal of adding these attractive new products to our commercial portfolio and further leverage our established relationships within the GI community. We estimate the combined peak sales potential of these products at $200 million to $400 million and we have increased our focus on adding additional markets and late-stage development products in the areas of gastroenterology and endocrinology where we have established relationships or in smaller specialty markets. We believe our strong cash position of more than $90 million will support these activities. In closing we believe that Santarus continues to be an attractive company as we transition to a more specially focused business model.
I would now like to open up the call and take some questions.
Question-and-Answer Session
Operator
(Operator Instructions).
Martha Hough
While we are waiting for question, I would like to mention that we’ll be presenting at the Jefferies 2010 Global Life Sciences Conference on June 8th, at the New York Grand Hotel. If you plan to attend the Jefferies Conference, we hope to see you there. A web cast of our corporate presentation also will be available on the Santarus website. Okay, Marvin we are ready for the first question
Operator
The first question comes from the line of Annabel Samimy with Thomas Weisel Partners
Annabel Samimy - Thomas Weisel
On the guidance that you provided obviously technically you’ve called revenue guidance then sort of fold R&D guidance, SG&A guidance as well but can you quantify what SG&A would look like if there is an authorized generic that comes out like on a percentage basis how much would you be reducing your SG&A. Can you just help us understand what this might look like if an authorized generic comes out?
Debbie Crawford
At this point in time there is a fair amount of uncertainty with regard to the timing of the generic launch in a particular how that will impact our financial results and that’s why it’s premature for us to provide any more specific guidance with respect 2010. I think certainly as Gerry mentioned in his remarks, we are prepared to take specific action at the time that is appropriate to do so and we would expect in that case that we would have a significant impact on our commercial organization and you would see that in future saving and that SG&A line.
Annabel Samimy - Thomas Weisel Partners
For I mean I appreciate you came really tell us what the SG&A guidance is for the year but can you give us a magnitude on how much it would decrease SG&A guidance not on an absolute basis, on a percentage basis, with a branded product versus an authorized generic
Unidentified Company Representative
Well, I think may be to add a little more color, when we think about an authorized generic being launched, at that time we would discontinue promotion on ZEGERID. Well that’s something we’ll be deciding over the next couple of weeks or whatever timeframe we have here before generic launches but I think we’ve provided some information in the past with respect to, that contract had certain minimums and in order for us to continue to promote the product we would want to ensure that we were able to meet all the contractual minimum in that GLUMETZA contract.
Annabel Samimy - Thomas Weisel Partners
Okay can you give us an idea of synergies, how much synergy do you have between GLUMETZA sales force and the ZEGERID sales force. And if you get rid of the ZEGERID sales force, how much steam does GLUMETZA lose, if it’s not as the, lets say, second retailer or something?
Gerry Proehl
Actually it’s the same sales force that’s promoting both GLUMETZA and ZEGERID. I think the way to think about it is, that they are promoting to endocrinologist primarily GLUMETZA and to gastroenterologists primarily ZEGERID, and then they promote to primary care physicians. In most cases, they are promoting both ZEGERID and GLUMETZA with a fairly strong overlap and most of the doctors are calling on that are primary care doctors would be getting both details.
Obviously what we would do in the situation where ZEGERID goes generic and our focus is on GLUMETZA. We would continue to prompt to our current group of endocrinologist and primary care physicians. We certainly would look at maximizing GLUMETZA by looking at those top deciles doctors that are either top GLUMETZA riders or top branded mid-form riders, and so I don’t think it’s a matter of one sales force and another to same sales force but it’s obviously the scale down sales force.
Annabel Samimy - Thomas Weisel Partners
Does that make it harder for that sales percent to get into a primary care office with only one product?
Gerry Proehl
I think we have, the nice thing about our sales force is we have a very experienced sales force they have been calling on these doctors for quite a few years. They developed great relationships with the physician and I think that dictates more whether or not a rep can get in to an office? It’s there relationship with the office and the doctors then it does a specific product of selling
Annabel Samimy - Thomas Weisel Partners
Okay and one more question, if I may I guess, I know you have contingency plans in place but how and you are trying to maximize their growth sales but how do you give a sales force motivated when they are not sure if they are going to have job and not sure on the timing of this contingency plan being affected.
Gerry Proehl
Clearly Annabel, it’s always a concern and if we would sit here and say we don’t think that the sales force is distracted. We’ll be kidding to ourselves and everyone else. They clearly are going to be distracted their. Wondering about what’s going to happen with them down the road. We’ve asked them to try to stay focused on selling both the ZEGERID and GLUMETZA, until we can determine where we are going to go as a company.
Obviously, for us to be successful as a company the more sales we can drive, the better off we are going to be. So that being said, we’ve got an experienced group of folks out there that have been committed to the company and want the company to be successful. And so I think they’re out there doing the best they can in a difficult situation.
Annabel Samimy - Thomas Weisel Partners
Have you noticed any change in awareness since the DTC campaign started with the OTC brands?
Unidentified Company Representative
We have plans in place to try and take advantage of the increased consumer awareness and we have seen some pickup and doctors requesting samples that have been outside our call-down audience. So it’s a little bit early, but encouraging early signs.
Operator
Our next question comes from the line of Scott Henry with Roth Capital.
Scott Henry - Roth Capital
I guess I’ll just start kind of on a broad strategy perspective and they are kind of drill down, but for Santarus given the events that have transpired with ZEGERID, have you heard any feedback from any of your partners whether it be Merck or GlaxoSmithKline? Have you seen any change in their level of commitment to the program?
Gerry Proehl
Let me start with Merck and then I will move on to the GSK and Norgine. We certainly have been in contact with the folks on Merck; they are still very enthusiastic about ZEGERID OTC. They believe it’s the best product out there. As we mentioned on our call earlier in prepared remarks, they’ve got outstanding data looking at acid control compared to Prevacid 24HR that clearly demonstrates faster and better acid control.
So they are still very motivated to make this product a success. From an overall regulatory standpoint, generic product is required to file an ANDA against this ZEGERID OTC product. They will (inaudible) go though filing that no only the ANDA put rev for certification. Obviously, the average FDA approval time for ANDA is somewhere around 24 months. From an OTC perspective, I would say that OTC companies primarily are focused on doing the best job possible to establish their brand name over a two to three year period so that if they do face a store brand type of product variable to retain a reasonable percentage of the business. And they certainly assuring has had experience in a lot of difference situations in a case of CLARITIN when they launched their product OTC, they saw generics immediately on market at our store brands on the market.
In the case of some other products that they also have, they were out there for a couple of years launching the product before they saw store brands but it’s not unfamiliar to them. Certainly the longer, they can be out there establishing the brand name to better offer going to be and the larger they can make the product. Obviously, that’s something that our store brand is going to think about also because when you prefer to erode a percentage of a brand that’s a much larger brand than a smaller brand.
Scott Henry - Roth Capital
No, you mentioned the typical ANDA timeline for an OTC product would be about 24 months. You also mentioned the paragraph 4 filing. Would that be necessary, given that the patterns of invested somewhat?
Unidentified Company Representative
So the requirement is because we are allowed to appeal the lower court decision, which we said we will do within the 30 day period as required but the patents remain in the Orange Book and anyone who files and whether that would be on the OTC or the RX product we’ll need to do a paragraph for a certification.
Scott Henry - Roth Capital
Is that just a formality or does that bring with it any sort of stay?
Gerry Proehl
Certainly both Santarus and Schering-Plough will make a decision at that point in time on how we would proceed.
Scott Henry - Roth Capital
I guess shifting on in terms of final approval of the generic from par what is your expectation on that timeline, I don’t know if you would have any information that we wouldn’t, but just curious about your expectation?
Gerry Proehl
I think you’d probably have to ask par for that question. I don’t have any particular expectation. We are moving forward. We are certainly going to be prepared for launching authorized generic at the time that they’re prepared to lunch their generic product but what we know to-date is that they have tentative approval on the capsule formulation. They did not receive tentative approval on the powder formulation. Now the FDA could go to final approval on both, but that’s all we know at this point as always in the public domain.
Scott Henry - Roth Capital
Gerry when you think about acquiring new assets for leverage across your sales force, is there any way you can kind a frame up your timeline on that process, do you think you’re closer to the end or the beginning or just in general terms how do you think the environment is and how fast can you execute on that?
Gerry Proehl
Scott, we continue to look at both marketed and development stage products. Obviously we have a high sense of urgency but you also have several partners that have the similar sense of urgency. Until we have signed agreements we can’t give any particular timeframe. We can think we are very close and all sorts of things and keep you from getting agreement signed but all I will say is we have a high sense of urgency, we are pushing forward. We think that Santarus is an attractive company. We preferred that to be have ZEGERID as one of promoted products but if we don’t we still think it’s a very attractive company with the good revenue source of cash and some interesting development products and certainly we think that if we can add some additional development or marketed products it will be even a more interesting company with a higher value in the future.
Scott Henry - Roth Capital
Just a couple of very quick specific questions, the OTC stoking in Q1 would we expect to see a similar level in Q2 or perhaps greater? Any color wish we get there?
Debbie Crawford
I don’t think that Merck has provided any guidance with regards to that, Scott. But certainly there would have been that initial stocking that occurred in the late March timeframe.
Scott Henry - Roth Capital
Just a couple of things, the royalty rate changed the University of Missouri or does it change with OTC, how is it consistent 5% how do we think about that?
Debbie Crawford
The royalty is applied to the next sales for both of those products.
Scott Henry - Roth Capital
And at the same rate, same level?
Debbie Crawford
The rate is the same.
Scott Henry - Roth Capital
And just final question from me, the gross margins lower than we’ve seen in sometime in the quarter is that sustainable or elaboration how should we think about that?
Debbie Crawford
The cost of sales was lower. To the extent that was primarily driven Scott, by our improved average selling prices. I think that an objective we’ve had for some time and we’d hope to be able to continue certainly would be impacted by pricing and timing of generic launch, if that were to occur in 2010.
Operator
And our next question comes from the line of Ian Sanderson with Cowen.
Ian Sanderson - Cowen and Company
First of all on the ZEGERID tablets, any recent discussions with the FDA, is that (inaudible) and on that is there an opportunity for you to conduct a trial or at some sort to be able to argue superiority for the tablets relative to the capsule and that’s why you did convert the franchise there or compete in a generic market?
Gerry Proehl
With regard to the interactions with the FDA since the only that we are waiting for is than to approve a name that we’ve submitted. We haven’t had any specific communication. We would expect that we will hear something on the PDUFA day which is the first week in June. I don’t expect we will have any communication before then. I think there is not really much to communicate other than they have proved the name or they don’t approve the name. As it relates to the tablet product there is certainly some differentiating factors with the product, it has a lower sodium content which we think is important for patients. It also has higher ANC or acid neutralizing capacity because we’ve added magnesium hydroxide to the product. That being said, I don’t know if any PPI that’s going to head-to-head efficacy comparison looking at heartburn or GERD, we’ve actually done that type of study. It’s very difficult to be an extremely large study and that likely one we would pursue.
Ian Sanderson - Cowen and Company
Is there something you cold do get lower sodium plan?
Unidentified Company Representative
Well clearly we don’t have to do a particular study to get lower volume claim, we do have lower sodium in this product compared to the capital product it’s about 50% reduction in sodium.
Ian Sanderson - Cowen and Company
Okay and how about your license fees to Depomed and Cosmo that could be incurred this year and what about this report, would they be booked incurred and expensed or might there be an amortization charge there?
Debra Crawford
In particular with regards to the Cosmo the success with the Phase III study, that will just be recorded and expensed when it’s achieved. With regards to the Depomed that’s something that will be looking at and potentially need to accrue through out the year as the achievement of that sales level becomes more likely then not.
Ian Sanderson - Cowen and Company
Okay and then finally on the sales force composition could you remind us the numbers first and secondly are there any contract left within the (inaudible)
Gerry Proehl
This is Gerry, we currently have just under 300 sales reps which includes our Santarus and our intensive sales representative and at this point in time we haven’t made any final decision at the point that we would find a generic on the marketplace in launch our operation generically we would certainly, significantly downside organization to support GLUMETZA, but we have made any final determination as I said we are still looking at other business development opportunities, other product opportunities and I think at the time we have to make the decision we will make it based on what opportunities are available to us.
Operator
(Operator Instructions). Our next question comes from the line of David Amsellem with Piper Jaffrey.
David Amsellem - Piper Jaffrey
Just a couple, Proehl noted recently or has been noting recently that is one of the possibilities going forward is a settlement. So I guess the question here as the general question I mean really can’t say much but how realistic is that scenario at this point?
Gerry Proehl
Certainly settlements always the possibility it’s just not something that at this time are going to make any additional comments on.
David Amsellem - Piper Jaffrey
And then just drilling down on the sales force you may mentioned that you said 300 reps how many of those are primary care focus?
Gerry Proehl
So all of reps call on primary care gastroenterologists and endocrinologists.
David Amsellem - Piper Jaffrey
In order to not sacrifice the GLUMETZA franchise I mean what sort of the minimum number of reps that you need continue the drive the bugs.
Gerry Proehl
We haven’t that determination yet when were at that point will go ahead in disclose that.
Operator
You have a follow-up question from the line of Ian Sanderson with Cowen and Company.
Ian Sanderson - Cowen and Company
Just follow-up on the OTC ZEGERID relationship. Is there any change in the contract terms assuming that OTC does not have a patent associated with that?
Gerry Proehl
The way the contract is set up is as long as they are still in the appeal process and as long as they are not a store brand in the marketplace, the royalty payments both the payments that sharing to make to Santarus and payments that we make in the Missouri stay the same. Certainly if there is both if upper court upholds the lower court decision and as the store brand on the market, there is a reduction that will take place within the University of Missouri it’s a similar reduction that we will get from sharing also.
Operator
There are no further questions at this time. Please proceed with your presentation or any closing remarks.
Gerry Proehl
Great. I’d like to thank you for your interest in Santarus and for joining us on today’s call. If you do have any further questions please feel free to contact me, Debbie Crawford or Martha Hough. Thank you and have a nice day.
Operator
Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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