Santarus' Q3 Loss: The Rough Path to Recovery

| About: Santarus, Inc. (SNTS)

As expected, Santarus (NASDAQ:SNTS) reported a 3rd quarter loss after-hours Monday (see conference call transcript here). This was mostly attributed to reduced sales because of generic Zegerid competition, one-time costs and the fact that their diabetes drug GLUMETZA shipments did not resume in August, as originally anticipated. The loss was more significant than analysts expected but, the company is still likely to rebound and has significant cash reserves to do so along with a solid pipeline. Unfortunately, the recovery might not happen until sometime in 2011.

While this path to recovery, after they lost the heartburn drug Zegerid patent ruling, was expected to be rough, this loss still came in well-below estimates. The company lost $25.7 million, or 44 cents per share, compared with profit of $5.3 million, or 9 cents per share, during the same period in 2009. Analysts expected a loss of 21 cents per share on $22.3 million in revenue. Revenue fell to $18.1 million from $39.5 million and did not have GLUMETZA to help recover any of the revenue losses.

The loss was substantial which was partially due to higher one-time costs so, do not let that make you believe the quarter was worse than it really was. This includes a one-time restructuring cost of $7.3 million and a $15 million upfront payment to acquire rights to RHUCIN. The positive here is that the company has plenty of cash reserves and has shown the aggressiveness to increase their pipeline with it. I would not rule out another acquisition in 2011 but first, SNTS has to start selling the drugs they have and increase their revenue.

GLUMETZA shipments were supposed to resume this past August. Now, it seems they may not ship until 1st quarter 2011 with a possible chance of being resumed this December. CYCLOSET, a key short-term catalyst, seems to still be on-time to launch this month. You can view my personal trades with SNTS and others on my website.

As always, do your own homework to see if you agree.

Disclosure: Long SNTS but positions may change at any time

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